In this brave new world of globalisation, it is easier than ever to create an international business selling goods and services throughout the world. With this extra global reach comes the obligations of different countries tax rules and regulations. It is important to understand these obligations in order to build a sustainable business. Falling foul of local VAT laws can result in penalties and interest payments for late or non-compliance. Ultimately there is the threat of not being allowed to sell at all in a country if a business continues to flaunt the local rules.
The International VAT Rules – What To Think About
In order to understand the potential VAT treatment on your particular supply, there are some fundamental questions which need to be asked:
- Where are your customers – Inside or outside the EU?
- What are you selling – Goods or services?
- Who are you selling to – Businesses or consumers?
You can also read our International VAT Essentials guide for selling services.
Selling Goods Internationally Online
Selling Goods To Businesses Within The EU
There is no obligation for you, the supplier to VAT register in another EU country if:
- Your Customer is a VAT registered business with a valid VAT number which you can check on the European Commission website http://ec.europa.eu/taxation_customs/vies/
- Put the valid VAT number on the invoice along with obligatory phrase “Intra EU despatch of goods – Customer liable to account for the VAT””
- You retain proof that the goods left the UK and went to an EU customer
However, there is some paperwork which has to be completed, namely on your VAT return, an EC Sales List and if you’ve exceeded the intrastat thresholds, an Intrastat filing.
Selling Goods to Private Consumers Within The EU
If you are based in Europe, and sell to consumers within the EU, the EU VAT distance selling rules apply to you. These rules apply even if:
- You are not VAT-registered.
- You are a sole trader.
- You are only selling through marketplaces such as eBay and Amazon – the marketplaces do not take responsibility for VAT at all.
Please note the rules only apply when you are selling to EU consumers.
For sales within the EU, if you have not exceeded the threshold for the buyer’s country, you should apply your domestic rate of VAT to those sales – if you are VAT registered. Otherwise no VAT should be applied.
Once you have exceeded the threshold for another EU member state, you will have to register for VAT there, charge the country’s own rate of VAT, and file returns according to the frequency and deadlines set by that country. You will stay registered as long as your distance sales exceed the threshold. If your sales drop and you want to de-register, check the rules in that country – how soon you can de-register does vary.
The Use of Fulfilment Centres Within The EU
If you opt to use a fulfilment centre in the EU to service your private consumers, where you hold stock and retain ownership of it, you have an obligation to VAT register in that country immediately – there is no threshold to exceed.
Selling Goods to Non EU Countries
Generally speaking, you can zero-rate supplies exported outside the European Union (EU), provided you follow strict rules, For goods you have to provide evidence of export to show that the goods left the EU
You do however need to get information on the local tax rules and regulations of the country/ies you are importing into – you may have obligations there – including import charges to take into consideration which would effect your margins.
Penalties and Fines
In 2011 the EU reported a loss of €193 billion from undeclared VAT. To stop the haemorrhaging, special measures have been put in place across the EU.
Firstly, in 2012, member states set up a “mutual co-operation” initiative, with special units focused on ecommerce. The authorities in each country now communicate regularly and share data. Since then, in the UK in 2016, the UK Treasury Budget included proposed new measures to combat the non-compliance of online sellers – including a focused drive to make the marketplaces and fulfilment houses some way responsible for the VAT compliance of the sellers using their services. The proposal is set to become law in Spring 2018 – one of the new measures requires Amazon to block non-UK sellers selling through Amazon.co.uk without a valid VAT number. We have also had reports of the German Tax Authority entering marketplace fulfilment centres to seize goods from non-compliant sellers. The days of non-compliance are very much coming to an end. Online retailers selling abroad need to be very aware of their tax obligations in the countries where their customers are. Unfortunately, ignorance is no defence. Tax authorities have the power to levy penalties and interest charges, which can be as high as 400% on top of the unpaid taxes in some countries.
Here are some tips to help keep you compliant within the VAT rules in Europe:
- Make sure you have the systems in place to capture accurate sales information including which countries your customers are in.
- Please include shipping/delivery costs as these are included in the final sums when calculating if a threshold has been exceeded
- When charging your customers, make sure you add VAT to the shipping cost as well as the product price on your invoices.
- Keep up-to-date with the VAT registration thresholds and where relevant, monitor currency fluctuations. Know when you are about to exceed a threshold including when the local currency is not in Euros.
- Know which VAT rates apply to your goods or services. If you are in the EU, you may be familiar with the classification system in your own country, but it can vary elsewhere within Europe. Children’s clothing is a good example – it is zero-rated in the UK and Ireland, but attracts VAT everywhere else in the EU.
- Once registered in another country, do not charge VAT for your own country as well as the buyer’s country. VAT should only be charged once.
- It can take approximately 6 weeks to obtain a VAT registration, depending on the country that you are registering in.
- Once registered you need to make sure your invoices comply with local regulations.
The Cost of Compliance
Preparation and planning are a vital part of the cross-border trade journey. Make sure you factor in the expense of complying with local taxes like VAT, including the cost of translation, software, and expert advice. It should sit alongside other regular expenses such as web hosting and accountants’ fees.
Circumstances unique to your business will dictate which VAT rules are relevant to you. Do your homework and your sums. Many businesses who have already made the leap to international expansion find the cost of compliance is far out-weighed by the increased sales and profits.
At SimplyVAT.com, we provide VAT registrations and returns in all the 28 EU countries and other territories where local laws prevail, we can also help with any consultancy questions you may have. Please don’t hesitate to get in touch at firstname.lastname@example.org, any one of the team will be more than happy to help you.
Bite Sized Chunks – International VAT Essentials
SimplyVAT.com are very proud to present Bite Sized Chunks – International VAT Essentials in partnership with the Institute of Export. There are 4 modules which cover in detail the aspects of international VAT which are relevant to UK exporters – including much more detail than given in this article – the nuances of the application of VAT on different services and goods. The final module covers International VAT Recovery and is a free bonus module when any other module is purchased.
If you are a member of The Institute of Export, completion of the modules count towards your Continuing Professional Development points.
We wish you all the best with your international expansion plans!
Claire Taylor, CEO of SimplyVAT.com