Businesses that sell online may sell to consumers based in many countries so it is vital that they know their international VAT obligations and responsibilities.
Distance selling thresholds vary from country to country so it is imperative that businesses monitor sales levels to ensure correct VAT is applied and any unnecessary fines and penalties avoided.
Distance selling takes place when a VAT registered business in an EU country supplies and delivers goods to a customer in another EU country who is not VAT registered.
It includes sales to private individuals via mail order or website sales.
Only sales made of goods are considered a distance sale – not services.
A sale to a business established outside the EU will not be considered a distance sale for VAT purposes, but other obligations to VAT register may arise.
What To Do
Keep a careful record of where your customers are located as cross border sales may require different treatment in each country where a sale takes place.
When distance selling thresholds are crossed in a particular country, EU VAT law will stipulate that you are legally obliged to register for VAT in that country. A direct application will need to be made with the local VAT authority where the sales are made. A local VAT number will be allocated and local VAT treatments will apply.
Each EU country has its own set of rules that need to be carefully considered to ensure the VAT rates charged are correct.
Not all goods require the standard rate of VAT as this can vary from country to country so apply the relevant VAT rate to your sales in the country where your customer is based.
Ensure you understand the local VAT laws to avoid fines and penalties.
It is important that you also consider your retrospective VAT position and responsibilities. Legislation in the EU is strictly applied when it comes to distance selling and when distance selling thresholds are breached.
When there is an interval between breaching the distance selling threshold and making an application to register for VAT it will be necessary to liaise with the relevant VAT authority to resolve any outstanding retrospective VAT matters and any possible fines and penalties.
Once VAT registered and charging local VAT rates a business is then obliged to submit VAT returns to the relevant VAT organisation in that country.
Distance selling thresholds and legislation can change from year to year so it is essential that you monitor changes.
Voluntary VAT Registration
EU Member country will allow you to volunteer to VAT register in advance of crossing the distance selling thresholds.
It is important to consider the following if volunteering to VAT register in advance:
If the local VAT rate is higher than the VAT rate you are charging, then once the threshold is met you will have to start charging at the higher rate and therefore your goods will become more expensive. If you volunteer to register now at a higher rate your customers will not be subject to a higher rate at a later stage.
If the local VAT rate is lower than the VAT rate you are currently charging your goods will technically become cheaper if you register and apply the lower VAT rate.