[mrbabbage]

this is correct. the main advantage of a VAT is incentive alignment. every intermediary producer must collect and remit VAT if they want to claim their VAT refunds for inputs. i.e., a seller of a good in Europe must collect VAT if they want to claim a VAT refund on whatever they paid for the good.

compare to American sales taxes, where sellers have no economic incentive to collect sales taxes beyond the probability of being caught and fined.

[luckylion]

Primarily though, they must collect VAT because it's the law. In Germany, you can get an exception if you're tiny and have very low revenue.

If it was optional if you didn't want to claim expended VAT, quite a few companies would happily choose that, because you don't pay VAT on labor and that's the biggest cost in many industries. If you're primarily b2c, you could effectively lower your prices by a good chunk or get a healthy chunk of extra profit.

But you can't, because there's no choice, it's just the law.

[Muromec]

They are required to collect VAT, but they are also incentivized to collect it and not do funny things like having a "broken" payment terminal.

[ncruces]

In my country, segments more prone to “informal” sales (SMEs, cash transactions, limited incentive for paperwork), have reduced VAT (final sale has a reduced rate compared to many supplies), and the customer can get some of that VAT back as an income tax deduction if they demand to be invoiced.

The advantage of this, is that if you have to have accounting for sales, you'll probably have accounting too for labour, and you'll also pay income tax, social security, etc.

[PaulDavisThe1st]

In my US state, vendors & service providers are quite open about "if you pay cash, I will not charge you the Gross Receipts Tax" (GRT is New Mexico's weird attempt at something vaguely like a cross between VAT and a sales tax).

[JetSetIlly]

How does Germany define low revenue for VAT purposes? In the UK, the threshold for compulsory VAT registration is currently £90,000 annual revenue, which I would say is quite large.

[luckylion]

Max 100k € in the current year, max 25k € in the previous, so effectively you can do it indefinitely only if you remain below 25k. Should you ever cross 100k, you have to immediately switch to the regular scheme, collecting VAT (and being able to file any VAT you paid).

I don't know any numbers, but I only ever see it being used by sellers on Amazon.

[jimnotgym]

In what way is that large? A small plumbing firm with two staff will be over that.

[JetSetIlly]

Many businesses in the UK operate comfortably with revenue less than £90k. Sole traders mainly. But yes, once you employ staff it's likely you'll be looking at needing a higher revenue.

[jimnotgym]

Sole traders working labour only may operate below this comfortably. But this is irrelevant to this thread about international trade in GOODS. Not many who are shipping goods and trying to make a decent income off a margin will fall under £90k. If you think you want to make £50k a year on a 25% margin, for instance, you will smash that threshold.

[JetSetIlly]

Fair. I wanted to compare the German and UK thresholds more generally (the German threshold seems very low to me even for labour-only sole traders). But I would agree with you that trade in goods across borders would very likely cross the UK threshold very quickly.