Understanding Notional VAT for EU B2B Transactions
Notional VAT applies to B2B sales and purchases, and reverse charges on services within the European Union (EU).
For cross border transactions between EU member states, you would charge VAT only to buyers who are not tax registered (mostly individual consumers, but can include companies too). However, for B2B transactions with VAT registered companies, you use a zero rated tax for sales transactions if the buyer is VAT registered in a different EU country. For example, you are a seller in the U.K. and the buyer is in Germany.
Notional VAT is used purely for tax reporting purposes. For a B2B transaction with a zero rated tax, the customs or tax authorities need to know what the tax amount would have been if VAT had been charged. This amount is the notional amount. No cash is paid or received. It is also not on any bill or invoice, and has no G/L impact in NetSuite.
For more information, see How NetSuite Determines the Notional Tax Code to Use for a Transaction.
Each EU nexus you do business in must be set up with the appropriate tax codes. For a list of tax codes, see the country tax topic for each EU member state.