Value-added tax, or VAT, can be confusing for many business owners. Some businesses are required to register for VAT, while others may do so voluntarily. This guide will help you decide whether your business should register for VAT.
Compulsory VAT Registration
Companies, including foreign companies, are usually required to submit a Norwegian VAT registration when they deliver goods within Norway, export goods from Norway, install or assemble goods in Norway, or supply services in Norway. However, some goods and services, including education, healthcare, and social services, are considered VAT exempt. An auditing services company can help you determine whether your company is required to register for VAT.
Norwegian VAT Registration Threshold
Companies that exceed the annual VAT turnover threshold are required to register for VAT. However, companies that do not meet this threshold may still voluntarily register if they choose. The threshold amount is based on a company’s total sales in the country during a 12-month period. This may be calculated based on sales in the previous 12 months or on sales forecasts for the next 12 months. Goods and services that are considered exempt are not included when calculating this threshold.
Advantages of Registration
Some businesses that do not meet the threshold for compulsory VAT registration may still choose to register. The main reasons some businesses choose to voluntarily register are to reclaim VAT and make a good impression on clients.
Registering for VAT may allow companies to claim back some of the VAT they have paid on purchases from other businesses as part of their operations supplying goods or services. The other reason some businesses consider registering is that many customers view VAT exempt companies as being small players. This can often be an issue when you are doing business with large corporations. If you want to decrease the chances of being blown off by the big players in your industry, it may be worthwhile to register for VAT.
Disadvantages of Registration
Before you make your decision, you should also consider the drawbacks of registering. One of the primary concerns is that you will likely need to charge your customers more for your products and services to account for the VAT tax you are paying. This could cause some customers to defect to a competitor, particularly if most of your competitors are not VAT registered.
Additionally, there are administrative disadvantages to registering. Your VAT registration will require you to keep track of and file paperwork related to your VAT status. VAT returns will need to be reported on a bi-monthly or quarterly basis. You may need to hire a professional to assist you with this process.
The Norwegian tax authority can provide registration instructions. Once registered, your company will receive a VAT registration number. Your VAT number is used to keep track of the taxes you pay, the tax credits you receive, and the tax you charge customers.
Foreign companies can register for VAT without needing to form a local company, but they will need to appoint a Norwegian VAT representative. Both the company and the representative will be held jointly liable for reporting and paying VAT to the Norwegian authorities. The representative will also need to take care of communications between the business and the Norwegian tax authorities.
If you are required to register or register voluntarily, you will be required to charge a 25% VAT on everything you sell to a resident of Norway. However, if you are selling to a business with a valid VAT number, you do not need to calculate or collect VAT. The business making the purchase will be required to handle paying the tax. Unfortunately, this means you will also be required to handle VAT payments on your own purchases from other businesses in Norway. However, you may be entitled to reclaim some of the VAT you paid out when you file your VAT returns.
To comply with tax laws in Norway, you will need to complete invoices that include your business name and address, invoice date, VAT number, buyer’s name and address, invoice sequencing number, an itemized VAT amount and rate, the invoice total after the VAT is added and the currency used. Additionally, you will need to file VAT returns and pay any VAT tax you owe to the government every quarter. To ensure proper compliance, it can be wise to consult with VAT advisory services.
If your business is not subject to the conditions that trigger compulsory registration, it is up to you whether or not to register for VAT. Registration comes with some benefits, but also results in additional paperwork and could lead to lost customers due to the additional tax you must charge on goods and services. It can be helpful to seek the assistance of a professional who can help you assess the costs and benefits of voluntarily registering for VAT before you make your decision about registering.