How VAT works in an online store: Practical Guide for selling abroad
E-commerce and physical commerce
E-commerce has ceased to be a complement to physical sales, and has become the true bulk of many businesses.
Since 2000, the number of online sales has grown exponentially, mainly due to the ease of accessing the Internet.
In fact, the Internet is already a meeting place and is no longer a simple means of communicating information, as it was originally intended.
Thus, the growing use of the internet has been the necessary vanguard for electronic commerce, also known as " e-commerce ," to grow.
Due to the popularization of its use, the amount of money that moves daily around the world in electronic commerce operations is very high.
We consider it natural to buy a product from our computer or phone, and we have internalized it in our rhythm of life as a practice as common as going to a store in person.
Given this increase in business volume, countries have sought to tax these types of transactions because they have found in this activity an important source of revenue.
And ultimately, the taxable event of buying a good or service was already taxed beforehand; the only difference is that in distance buying, the transaction is not carried out in person but by other means.
EU and Spanish legislation to manage VAT in an international ecommerce
Different countries have wanted to tax these types of transactions. This has also been the case in the EU, which has made important changes to the VAT applicable to distance trade. The legal texts that have been followed are:
- Council Directive (EU) 2017/2455, of December 5, 2017, amending Directive 2006/112/EC and Directive 2009/132/EC with regard to certain obligations regarding value added tax for the provision of services and sales to distance of goods.
- Council Directive (EU) 2019/1995 of 21 November 2019 amending Directive 2006/112/EC as regards provisions relating to distance sales of goods and certain domestic supplies of goods.
Spain has transposed these two Directives into its internal regulations through Royal Decree-Law 7/2021, of April 27, 2021, published in the BOE of April 28.
EU objectives on international trade
- Streamline and energize the procedures.
- Reduce administrative burden of the companies.
- Bridging the gap between states EU members between the expected and the collected VAT.
What situations are VAT applied to distance commerce subject to?
Sales and services are taxed where the customer is located in an EU Member State and the goods also come from another Member State.
On the other hand, sales of goods imported from third countries to a Member State are also taxed. Therefore, national sales are not subject to these changes.
Thus, this legislation taxes intra-community distance sales and extra-community distance sales, that is, when goods are sent from a non-EU State to an EU State.
Therefore, a very important differentiating factor is the place of origin of the goods . A second relevant factor is the transport of the goods.
Also included in the application of this regulation are cases in which the seller chooses to subcontract the transport services to another professional, or in some way uses a third party to ensure that the goods reach the consumer.
Next, we will delve into the two situations that are considered taxable events:
Intra-community distance sales
As we mentioned, these are sales in which the seller moves the goods from one Member State to another Member State , the latter being the customer's domicile.
To find out in which country the sale will be taxed, whether in the country of origin of the goods or in the country of the buyer's domicile, we must consider the sales threshold of 10000 euros.
If the value of sales of goods and services (provided electronically, by broadcasting, television and telecommunications) by the entrepreneur in all EU countries exceeds that threshold , the sale will be taxed at the customer's domicile.
Conversely, if it does not exceed that amount , the sales will be taxed in the country of origin of the goods.
Distance sales of goods imported from non-EU countries
These are sales in which the goods come from a third country and the customer's address or the place where they are received is in an EU country.
No exemption is provided for imported goods.
All of them are subject to VAT payment , regardless of their amount.
On the one hand, it should be noted that with the aim of promoting trade, a simplified declaration procedure has been established for imports with a value of less than 150 euros , for those goods that do not have the special classification.
Companies that opt for the simplified declaration procedure will be required to apply the general tax rate and pay the amount due on a monthly basis.
In these cases, it is presumed that VAT has always been collected except in situations of destruction of goods, abandonment of the same or reshipment.
On the other hand, if the threshold of 150 euros is exceeded, the business owner is obliged to carry out a full import declaration and both the collection and settlement of the tax will be done by the common procedure.
The EU Single Window system
The EU as a legal entity and any of its Member States seek to promote trade within their borders.
Active, sustainable and valuable trade is one of the driving forces that improve the economic situation of a country, its businesses and families.
Therefore, it is not surprising that the EU has designed a one-stop shop system for VAT collection and payment . This aims to facilitate transactions for sellers within the EU and maintain the Union's attractiveness for investment and trade.
First, we must clarify that the term "one-stop shop" is commonly used to refer to a government agency or institution where we can carry out a multitude of different procedures without needing to go to a second office. In English, it is called a " One Stop Shop ."
The single window system exists for both intra-Community distance sales and extra-Community distance sales:
The Single Window for Intra-Community Sales
This system allows an EU business owner to submit a declaration in their own country that includes the VAT due in other EU countries and pay it to the tax authorities in their country.
The Public Administration is then responsible for transferring the taxes collected to the EU States to which the goods and services in question have been destined.
For example, a Spanish businessman who owns a chain of appliance stores has sold goods to France, Estonia and Germany through his e-commerce site.
Thanks to the one-stop shop, he will be able to declare and pay the VAT corresponding to those operations at the Spanish Tax Agency and subsequently those amounts will be transferred to each of those countries.
The One Stop Shop for Distance Sales from non-EU countries
Similarly, a business owner from a non-EU country can declare and pay the corresponding amount of VAT for all their sales in the Union to the tax services of an EU country in which they operate , and they will subsequently transfer that money to the appropriate States.
Conclusion on how to manage cross-border VAT in an ecommerce
The EU has recognised the growing importance of e-commerce in the global economy and has decided to adapt its VAT legislation for distance sales to current times.
This legislation aims to raise more revenue for the Union and encourage EU and extra-EU trade.
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RRYP Global , expert lawyers in international trade.
