Companies of all sizes are taking advantage of the potential of the internet to reach into new markets, and extend their sales territories beyond the country in which they are established. E-commerce (along with electronic downloads and mail-order selling) is enabling businesses to reach millions of new international customers.
Understand the VAT obligations of Distance Selling
The increase in online retail is great news for businesses; but, it’s extremely important to make sure that VAT registration and reporting obligations are fulfilled as part of the process of making sales. If your company sells goods cross-border to non-business customers via the internet or mail order then you could be making “distance sales” for VAT purposes and may have to register for, and report, VAT in a number of EU Member States.
VAT Registrations, Reporting and Compliance
It’s crucial that VAT registration and reporting obligations are fulfilled as part of the process of distance selling. If your company sell goods cross-border to non-business customers via the internet or mail order then you could be making “distance sales” for VAT purposes and may have to register for, and report, VAT in a number of EU Member States.
Voluntary VAT Registration
The Distance Selling rules only require a seller to register for VAT in countries where their customers are based once the threshold has been breached in a particular Member State. However, it is sometimes possible to register voluntarily before the threshold is breached to take advantage of local VAT rates:
Reduced VAT Rates
Where different Member States have different VAT rates on the same supplies, for example an EU supplier outside the UK selling children’s clothes to customers in the UK, businesses may be able to take advantage of the reduced VAT rates that apply in the UK making their goods more competitively priced.
Lower Standard VAT Rates
Businesses established in a country with a higher standard rate of VAT than the country where it’s customers are based, creates a disadvantage compared to competitors. For example, a Swedish supplier selling goods taxable at the standard rate throughout the EU will charge 25% on all sales into each Member State until breaching thresholds. Registering voluntarily in Member States with lower VAT rates immediately reduces the cost of the goods.
VAT and Reporting obligations for Distance Sellers
- The total value of distance sales made into an EU Member State each year determines whether or not a company has to register for VAT in that country as a distance seller
- Member States apply varying and changing thresholds for registration. Therefore it’s crucial to consistently monitor volumes of sales and thresholds across the EU’s 28 Member States
- Once registered, distance sellers must submit regular VAT returns (quarterly or monthly) to the Member State in question
- Many distance sellers will need to submit a monthly dispatch Intrastat declaration to record their intra-EU movements of goods; and some companies will also need to make Intrastat arrivals declarations in the countries into which they are selling