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VAT changes for eCommerce in the European Union | eBook

April 21, 2021

E-shop operators, attention! From July 1, 2021 the rules for the sale of goods via mail order will change substantially.

If your e-shop delivers goods to customers in other EU states in B2C transactions, a change in the VAT treatment of mail order sales will apply to you from the middle of this year. The reason is the change of the VAT legislation in the field of distance sales of goods, formerly known as dispatching goods to another EU member state. This change will apply to the cases when goods are delivered to other member states to end consumers (citizens, non-entrepreneurs), i.e. persons for whom acquisition of goods is not subject to VAT.

We have prepared a useful summary of the changes to help you find answers to your questions.

Download our eBook, or read more below

What is the situation today?

Currently, each EU state has its own threshold for the distance sales of goods between EU countries. With regards to VAT, the trader may get into the following situations:

  • the threshold of the member state of consumption is not exceeded – the trader applies the VAT of the state where the transport begins (e.g. in a situation when the country of dispatch is the Czech Republic, the trader applies the Czech VAT to the delivery);
  • the threshold of the member state of consumption is exceeded – the trader becomes obliged to register themselves for VAT in the state where the transport ends, and to file VAT returns and pay VAT there according to the rules of the given state (e.g. in a situation when the country where the transport of the goods ends is Slovakia, the trader is obliged to apply the Slovak VAT to the goods sold to the customers, to register itself for VAT in Slovakia, and to file Slovak VAT returns).

What will change?

Starting from 1 July 2021, the threshold set out for the distance sales of goods will be assessed as a total for all the EU member states to which the e-shop delivers goods. The threshold will amount to EUR 10,000 per calendar year. As for the sales carried out by a domestic e-shop to all the EU states up to the total amount of EUR 10,000, the e-shop will apply the local, e.g. Czech VAT to such sales and will report the tax in its Czech VAT return.

However, if the e-shop exceeds the aforesaid threshold, it will choose one of the following variants for the fulfilment of the related VAT obligations:

  • it will register itself for VAT in each EU member country to which it delivers goods, even if the trader only carries out a single delivery to another member state;
  • it will register itself in the local country, e.g. Czech Republic for the One Stop Shop and will fulfil VAT obligations arising from the sales of goods to all EU member states only in the Czech Republic.

The threshold of EUR 10,000 applies solely to those local, e.g. Czech e-shops that send goods from the respective country only, e.g. Czech Republic and do not have an establishment in another EU member state at the same time. In the opposite case, the aforesaid rules will not apply.

What is the “One Stop Shop”?

Registration for the One Stop Shop (hereinafter referred to as the “OSS”) is voluntary. If the e-shop chooses this option, it will only file one VAT return in which it will report all the distance sales of goods carried out in the EU.

In the VAT return it will state the total value of performance carried out by the e-shop separately for each member state in which the customers reside. The taxation period is a calendar quarter and the tax liability will be settled by paying a single amount into a specially designated account of the tax administrator. The deadline for filing the return will be the last day of the month following the expiry of the quarter, i.e. the deadline for filing the return for the third quarter will be 31 October.

Will the registration for the OSS bring any benefits as compared to the registration for VAT in the state where the transport ends?

To get the answer, it will always depend on the particular situation of the trader. The trader should carry out an analysis to find out whether it pays off for them to register for the OSS or not.

In general, registration for the OSS will bring benefits to those traders which carry out only distance sales of goods in the given EU state. In such case, the benefits of registration for the OSS are as follows:

  • no obligation to register oneself for VAT in individual EU states;
  • if the trader has already been registered for VAT in the given EU state, they may terminate such registration, thus considerably reducing the related administrative and financial requirements imposed on the trader in connection with registration for VAT in EU member states;
  • no complications associated with the communication with the foreign tax administrator and a local provider of VAT return processing services;
  • reduction of the number of VAT returns to be prepared and filed; traders registered for the OSS will only file two VAT returns (i.e. standard domestic VAT return and special OSS VAT return);
  • the aforesaid changes arising from the OSS will facilitate cash flow management.

When can I register myself for the OSS?

Registration for the OSS started on 1 April 2021. The first tax return in this regime will be filed by 31 October 2021 for the period from 1 July to 30 September 2021.

Can I decide to register myself for the OSS only in some member states and to report sales standardly through a local VAT return in other states?

The registration for the OSS is voluntary, but if the trader decides to register for the OSS, they will become obliged to apply the OSS to all distance sales of goods carried out within the EU. All sales of goods carried out in the EU will be taxed through the OSS.

To which e-shops will this change in the VAT treatment of the distance sales of goods apply?

Primarily, the new rules will apply to those e-shops that carry out distance sales of goods to end consumers in other EU member states, on condition that the total value of sales to other member states exceeds EUR 10,000 per calendar year.

If the e-shop sells goods only in this country or carries out small-scale sales to other member states and the value of such sales does not exceed the aforesaid threshold of EUR 10,000 per calendar year, the situation is not changed for the given e-shop and the local country’s VAT will continue to apply to the sales (i.e. the place of performance will be the state where the transport begins, i.e. the local country).

Does this change in the field of VAT also relate to a situation when a local, e.g. Czech e-shop sells goods through “AMAZON or other Market Places”?

In certain situations, the electronic platforms (e.g. AMAZON) will participate in the collection of VAT in the recently introduced fiction. In the event of this fiction, the electronic platform will act, in terms of VAT, as a fictitious supplier of goods to a customer and will pay VAT in the state where the transport ends. At the same time, the seller (i.e. e-shop) will deliver the goods fictitiously to the platform in the regime of tax exemption in the state where the transport begins. The aforesaid rule will only apply in the event when the goods are located in the EU territory (e.g. the goods are stored in the Czech Republic) and the seller is from a third country (e.g. the seller is an e-shop established in the USA).

As for the Czech e-shops, the electronic platform will not act as a deemed supplier of goods to the end customer, and the standard rules for the distance sale of goods will apply, just like when the goods are sold through the trader’s own Czech e-shop.

If you are interested, we will be happy to analyse expediency of the application of the One Stop Shop to the business transactions carried out by your e-shop. We will also be happy to offer you our assistance in setting the correct mechanism of paying VAT on your sales of goods or in your registration for the One Stop Shop and preparation of related VAT returns.

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