Doing business with partners from other European Union Member States brings a number of tax obligations for Croatian businesses, one of the more important ones being the verification of a business partner’s VAT identification number.

A valid VAT ID number is not merely an administrative detail stated on an invoice. For certain supplies within the European Union, its validity is one of the key conditions for applying an exemption from Croatian VAT. If the supplier cannot prove the validity of its business partner’s VAT ID number, an obligation to charge VAT may arise.

Therefore, simply checking the number is not enough. It is also important to be able to prove that the verification was carried out and what the business partner’s status was at the time relevant to the transaction.

Below, we explain what VIES is, how to verify a business partner’s VAT ID number and which documentation should be retained as proof that the verification was carried out.

What Is a VAT Identification Number?

A VAT identification number is used to identify taxable persons in transactions between European Union Member States.

When a Croatian taxable person does business with a taxable person from another Member State, the business partner’s VAT ID number helps determine their tax status and ensures the correct application of VAT rules.

It is particularly important for cross-border supplies of goods and services that are subject to specific taxation rules within the European Union’s single market.

Why Is VAT ID Verification Important?

For supplies that qualify for a VAT exemption, a valid VAT identification number of the business partner is an important condition for correct tax treatment.

If a business partner does not have a valid VAT ID number, the supplier should not automatically assume that the conditions for issuing an invoice without Croatian VAT have been met.

If VIES indicates that the number is invalid, the first step is to check with the business partner whether the information provided is correct. If the number remains invalid after verification, the business partner should contact their competent tax authority.

What Is VIES and How Does It Work?

VIES, or the VAT Information Exchange System, is an electronic system for exchanging information on the validity of VAT identification numbers and transactions within the European Union’s single market.

It is important to note that VIES is not a single centralised European database containing all taxable persons. Instead, the system is connected to the national databases of individual Member States and retrieves information from the country that issued the relevant VAT ID number.

According to the Croatian Tax Administration, VAT ID validity data is updated on a daily basis.

How to Verify a Business Partner’s VAT ID Number?

Verification can be carried out through the European Commission’s VIES system.

The user selects the business partner’s Member State and enters their VAT identification number. The system then provides information on whether the number is valid at the time of verification.

Verification can be performed at two levels:

• Level 1 – verification of the validity of the VAT identification number only
• Level 2 – verification of the VAT identification number together with the name and address of the taxable person.

Due to data protection rules, some Member States do not allow the name and address of the taxable person to be displayed through VIES. This does not necessarily mean that there is an issue with the VAT ID number. In such cases, additional confirmation that the number is linked to a particular name and address can be requested from the Croatian Tax Administration.

What If VIES Shows That the VAT ID Number Is Invalid?

If the system indicates that the number is invalid, the supplier should contact the business partner and verify whether the information provided is correct.

The reason may be a simple error in the number or country code, but it may also mean that the business partner is currently not registered for VAT purposes.

If the validity of the number cannot be confirmed, the tax treatment of the transaction should be carefully determined before issuing the invoice.

The Croatian Tax Administration states that if a taxable person believes that their business partner is not a taxable person, the supply should not be exempted from VAT.

How Can You Prove That the VAT ID Number Was Verified?

This is one of the most important practical steps.

A business partner’s tax status may change over time. A VAT ID number that is valid today may subsequently be cancelled, meaning that a later verification may not prove what the partner’s status was at the time of an earlier transaction.

It is therefore advisable to retain evidence of the verification in the accounting records.

Acceptable evidence may include:

• a printout or saved result of the VIES verification
• the reference number (Consultation Number) obtained during the verification.

The reference number links the verification to a specific date and VAT identification number and may therefore serve as important evidence in the event of a subsequent tax audit.

What Is a Consultation Number?

When using VIES, it is also possible to enter your own VAT identification number as the requester’s details.

The verification result may then contain a unique Consultation Number, i.e. a reference number for the verification.

By retaining this number, the business has an additional record showing that it verified a specific VAT ID number on a particular date and received a result confirming its validity.

For this reason, it is advisable to retain both the verification result and the corresponding Consultation Number together with the documentation relating to the business partner or specific transaction.

What If VIES Does Not Display All the Required Information?

If the verification cannot be performed through VIES or the system does not provide confirmation of the required information, a Croatian taxable person may contact the Croatian Tax Administration.

The Croatian Tax Administration provides a verification service by email at provjera-valjanosti@porezna-uprava.hr.

To request verification, the taxable person must provide information that enables the identification of both the Croatian taxable person and the foreign business partner.

Based on the request, the Croatian Tax Administration may provide confirmation of the verification result, which can then be retained as part of the business documentation.

Should a VAT ID Number Be Verified Before Every Transaction?

There is no explicit obligation to verify a VAT ID number before every individual transaction.

However, the taxable person must ensure that the VAT identification number of their foreign business partner is valid.

The Croatian Tax Administration specifically states that the VAT ID number should be verified before the first supply to a new foreign business partner.

In practice, it is also reasonable to repeat the verification if there is reason to suspect that the business partner’s tax status has changed or if a significant period of time has passed since the previous verification.

The Most Common Mistakes Businesses Make

Although verifying a VAT ID number takes only a few minutes, mistakes can occur in practice and may subsequently create tax risks.

The most common include:

• relying solely on the VAT ID number stated on the business partner’s invoice or offer
• failing to verify the number before the first supply
• proceeding with a transaction even though VIES shows the number as invalid
• failing to retain the verification result
• assuming that a VAT ID number that was once verified will remain valid indefinitely
• issuing an invoice without Croatian VAT without checking whether all conditions for the relevant tax treatment have been met.

A well-established internal procedure for verifying business partners can significantly reduce the risk of such errors.

What Should Businesses Do?

Businesses dealing with partners from other EU Member States should incorporate VAT ID verification into their regular internal procedures.

It is advisable to:

• verify the VAT ID number before the first supply to a new EU business partner
• save the VIES verification result
• retain the Consultation Number where available
• repeat the verification if there is reason to suspect a change in the business partner’s status
• link the proof of verification to the relevant business and accounting documentation
• before applying a VAT exemption, verify that all other prescribed conditions have also been met.

This not only helps ensure correct VAT treatment but also provides a stronger audit trail in the event of a tax inspection.

Conclusion

Verifying a business partner’s VAT identification number is a simple but important step when doing business with companies from other European Union Member States.

A valid VAT ID number may be one of the key conditions for the correct application of a VAT exemption, but it is equally important to retain evidence that the verification was carried out.

A printout of the VIES result, the verification reference number or confirmation from the Croatian Tax Administration can help a business demonstrate the tax status of its business partner at the relevant point in time.

A well-established VAT ID verification procedure is therefore not merely an administrative formality, but an important part of ensuring tax compliance and reducing tax risks.

If you do business with partners from other EU Member States and are unsure whether you are applying VAT rules correctly, contact brandom. Our team can assist you in determining the correct tax treatment of transactions and ensuring that your business complies with applicable tax regulations.