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E-commerce – 7 Steps to getting VAT right

*All content in the webinar and the presentation is prepared by Accordance. Amazon EU Sarl and Amazon Services Europe Sarl are not certified tax advisors, hence Amazon does not and cannot give any

recommendations on tax-related matters to sellers using the Amazon Marketplace.

Introduction• How does VAT work?

• Difference between B2B and B2C sales

• How does VAT apply to E-commerce?

• When do I need to register in other Member States?

• What VAT rate applies to my products?

• What are my compliance obligations in other Member States?

2*All information in this presentation is correct as of 1 January 2014

How does VAT work ?

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• VAT is due on the:

• Need to meet all four criteria

B2B sale of goods?

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Business

Business in same

Member State

= Local Sale + Local VAT

Business

Business in other

Member State

= Cross-border sale +

No VAT

Customer accounts for

acquisition tax

B2C sales of goods

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Business

Consumer in same

Member State

= Local Sale + Local VAT

BusinessConsumer in

other Member State

= Cross-border sale

+ VAT but where?

Applying the rules in practice

• Where goods are delivered from the UK to a private customer in the UK, supply is liable to UK VAT

• No issue if supplier is registered for UK VAT

• Only issue is to determine if there is a reduced or zero rate applying to the goods

• If not, UK VAT at 20% is due

• Complications arise if goods are delivered outside of the UK

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What is Distance Selling?• When selling delivered goods to private individual in another Member

State – place of supply is UK....

• Until distance selling threshold exceeded

• Avoids distortion of competition due to variety of rates

• Standard rate of VAT in Luxembourg is 15%

• Standard rate of VAT in Denmark is 25%

• Danish residents could buy on line in Luxembourg and save 10% VAT

• Deprives Danish tax authorities of funds

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Treatment of sales below threshold

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• Follow UK rules on:• VAT Rate• Invoicing Requirements

• May have Intrastat obligations in the UK

Treatment of sales above threshold

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• Follow FR rules on:• VAT Rate• Invoicing Requirements

• May have Intrastat obligations in the UK

• May also have other reporting requirements in France

Consequences• Have to register for local VAT

• Have to charge local VAT at the appropriate rate

• Have to complete local VAT returns

• May also have to complete Intrastat declarations

• Need to consider impact on margins of having to account for VAT in a different Member State

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1. When do I have to register in other Member States

When do I have to register in other Member States?

• Thresholds act as a simplification to avoid registration for low levels of sales

• Each Member State sets its own threshold

• Have choice between €35,000 and €100,000

• Thresholds can occasionally change

• Thresholds can also be in local currency

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Distance Selling Thresholds

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• £70,000 (€83,610)UK

• €100,000France

• €35,000Italy

• €35,000Spain

• €100,000Germany

What about other Member States?

• Thresholds for all Member States available on EU website

• http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/traders/vat_community/vat_in_ec_annexi.pdf, data from March 2012

• Need to consider if information is up to date – do occasionally change

• Up to date thresholds are on our website

• Also need to take account of territory of EU as exports are treated differently and can be free of VAT

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2. Keep an eye on sales figures!

When do I have to register in other Member States?

• Distance selling thresholds apply on a calendar year basis (1 January-31 December)

• Sales must be monitored throughout the year

• Immediate obligation to register for VAT in Member States where the threshold has been passed

• Software needs to be able to determine destination of goods

• Location of customer is not relevant

• Sale to UK person but delivery to France is treated as a sale to France

• Registering for VAT too late can incur penalties and interest charges

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When do I have to register in other Member States?

• Thresholds do not apply if stock is held locally

• Considered to be a local sale rather than a distance sale

• Generally no threshold for non-established businesses

• Results in an immediate requirement to be registered for VAT

• In most Member States this does not result in having to account for VAT on distance sales if below threshold

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3. What VAT rate applies?

What VAT rate applies?

• When registered, the rate of VAT that applies is determined by Member State of destination of goods

• Standard VAT rates around the EU can vary considerably

• Minimum standard rate is 15% in Luxembourg

• Highest standard rate is currently Hungary with 27%

• However no maximum rate in law

• UK rate is now at the lower end of standard rates

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VAT Rates (Standard)

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• 20%UK

• 20% with effect from 1.1.14France

• 22%Italy

• 21%Spain

• 19%Germany

Does a reduced VAT rate apply?

• UK has a large number of zero rates and a few reduced rates (5%)

• Not always replicated across EU so don’t assume rules are the same as in the UK

• Other Member States have wider range of reduced rates than UK

• Result is zero rated goods could be liable to reduced or standard rate in other Member State

• Need to take account of different VAT rate in pricing

• Differential pricing is ideal but not always practical

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VAT Rates (Reduced)

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• 5% & 0%UK

• 10% (from 1.1.14), 5.5% & 2.1%France

• 10% & 4%Italy

• 10% & 4%Spain

• 7%Germany

How do I find out what rate applies?

• EU publishes rates on their website

• http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf, data from July 2013

• Provides basic guidance but may not be sufficient to provide certainty

• Need to ensure that business apply correct rate

• If the standard rate is applied incorrectly, the margin will be reduced

• If the reduced rate is applied incorrectly, this will create a risk

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4. Obtain VAT Registrations & be aware of monitoring

by tax authorities

Be aware of monitoring

• Where distance selling thresholds exceeded business needs to register for VAT

• Profile of distance sellers is high in many Member States

• Some tax authorities have set up specialist teams

• Some of these are carrying out audits e.g. Italy

• As a result, business activities are being closely monitored, with tax authorities exchanging information in some instances

• Therefore need to actively manage thresholds

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5. Ensure reporting compliance

VAT return compliance • Once VAT registered in a Member State, the business will have an

obligation to ensure ongoing VAT compliance

• VAT returns will be required to be submitted potentially at different frequencies (monthly, bi-monthly, quarterly, annually) depending on the Member State

• Some Member States have compulsory electronic filing

• Some require a local presence in order to be able to file

• No consistency in format of returns and language issues

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VAT reporting frequency

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• Quarterly (can be monthly if repayments)UK

• Monthly unless VAT due less than €4,000 (quarterly)France

• Annual but monthly or quarterly payments requiredItaly

• Quarterly or monthly Spain• Monthly unless VAT due less than €1,000 (annual) or

€7,500 (quarterly)Germany

B2B invoicing compliance • Will always be required for B2B transactions

• Will need to have VAT number of customer and validate it

• Will also need appropriate narrative on invoice

• If goods are stored locally need to be aware of who has liability to account for VAT

• Many Member States operate an extended reverse charge for supplies by non-established businesses

• Transfers liability to account from supplier to customer

• Operation is not consistent amongst Member States

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B2C invoicing compliance • Need to consider requirement for B2C transactions

• In UK, no VAT invoice has to be issued for B2C unless requested

• Rules are not consistent across EU

• Many Member States require invoices to be issued for B2C sales

• Need to consider how to adapt system to meet different requirements

• One option is to meet requirements in most onerous Member State but need to be aware of system issues and cost

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B2C invoicing requirements

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• Not required unless requestedUK

• RequiredFrance

• RequiredItaly

• RequiredSpain

• RequiredGermany

Intrastat compliance• Intrastat is the system in place to compile intra-EU trade statistics

• Distance sellers may have obligations in own Member State

• May also have to submit Intrastat declarations in Member State of customer

• Thresholds are generally much higher than distance selling threshold

• Thresholds tend to be higher for arrivals than dispatches

• May be able to use simplifications but use is not consistent

• Information required is also not consistent and can be problems in filing in other Member States

• Some countries do not require Intrastat for distance sellers (e.g. Italy)

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Intrastat Thresholds • http://www.accordancevat.com/vat-guides/intrastat-reporting-thresholds-2/

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UK

Arrivals:

£1,200,000

Dispatches: £250,000

France

Arrivals: €460,000

Dispatches: *

Italy

Arrivals:

Not required

Dispatches: Not

required

Spain

Arrivals: €250,000

Dispatches: €250,000

Germany

Arrivals: €500,000

Dispatches: €500,000

*More than 460,000: detailed Intrastat, Less than 460,000: simplified Intrastat

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6. VAT is not consistent within the EU

VAT is not consistent within the EU

• Whilst VAT is based on a single Directive, implementation can vary considerably

• Return formats vary substantially

• Some Member States require additional reporting

• Very few national tax authorities will allow documentation to be completed in languages other than that of the Member State

• Tax authorities are increasingly carrying out audits to ensure correct amount of VAT is due

• European Commission wants to improve level of consistency

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Introduction of a one stop shop

• A one stop shop (OSS) allows VAT that has been charged in multiple Member States to be accounted via a single registration

• OSS has been in place for non-EU established suppliers of e-services since 2003

• Mini OSS is to be introduced on 1 January 2015 for EU established suppliers of e-services

• OSS seen by EC as means of simplification

• Could potentially apply to distance sellers

• However, will not be introduced in the foreseeable future so await further announcements

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7. If in doubt, get help!

About Accordance

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• Accordance is an international VAT consultancy and compliance company. We enable businesses to trade internationally by making it simpler to manage cross-border VAT.

• Accordance’s team of VAT Consultants consist of ex Big-4 VAT professionals, and our experienced Compliance experts are fluent in all the major European languages. We work with a range of international FTSE 100 and Global 500 businesses to ensure VAT efficiency, as well as providing specialist VAT compliance services to remove the burden of cross-border VAT.

• www.accordancevat.com

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Andy Spencer

Director of Professional Services

Contact us for your free initial consultation

http://www.accordancevat.com/marketplace-sellers-contact-us-free-initial-consultation/

Telephone: +44 (0)1273 573950 Email: info@accordancevat.com

*All content in the webinar and the presentation is prepared by Accordance. Amazon EU Sarl and Amazon Services Europe Sarl are not certified tax advisors, hence Amazon does not and cannot give any recommendations on tax-related matters to sellers using the Amazon Marketplace.

Laurent Doggett

Senior VAT Consultant