E-commerce – 7 Steps to getting VAT right

1. E-commerce – 7 Steps to getting VAT right

2. Introduction • How does VAT apply to E-commerce? • Focus on distance selling of goods • How do the rules work? • When do I need to register in other Member States?

3. When is VAT chargeable? • VAT is due on the supply of goods or services by a taxable person • Where goods are delivered from the UK to a private customer in the UK, supply is liable to UK VAT • No issue if business 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 customers outside of the UK

4. What is Distance Selling? • When sell 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% • Everyone in Denmark could buy on line in Luxembourg and save 10% VAT • Deprives Danish tax authorities of funds

5. What is Distance Selling? • Solution is that when exceed threshold, VAT registration required in other Member State • 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

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

7. 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 • Member State sets threshold based on cost/benefit of registration • Thresholds can occasionally change • Thresholds can also be in local currency • Thresholds available on our website • Need to take account of territory of EU

8. 2. Keep an eye on sales figures!

9. 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, with an 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

10. 3. What VAT rate applies?

11. What VAT rate applies? • When registered, the rate of VAT that applies is determined by Member State of destination • Don’t assume rules are the same as in the UK • UK has a large number of zero rates • Not always replicated across EU • 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 VAT rate when determining pricing • Differential pricing is the ideal but is it practical

12. 4. Obtain VAT Registrations & be aware of monitoring by tax authorities - Don’t get caught out!!

13. Don’t get caught out! • Where distance selling thresholds exceeded need to register for VAT • Profile of distance sellers is high in many Member States • Many countries have financial difficulties so are seeking means of identifying additional tax revenues • VAT is not recoverable by customer so net benefit to tax authority

14. Don’t get caught out • Some tax authorities have set up specialist teams • Some of these are carrying out audits e.g. Italy • Others are contacting tax authorities in Member State of distance seller • As a result, business activities are being closely monitored, with tax authorities exchanging information in some instances • Therefore need to actively manage thresholds

15. 5. Ensure reporting compliance

16. Ensure reporting 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 • VAT invoices may need to be issued depending on local rules • May also have to submit Intrastat declarations • Thresholds are generally much higher • May be able to use simplifications but use is not consistent • Some countries do not require Intrastat for distance sellers

17. 6. VAT is not consistent within the EU

18. 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

19. 7. If in doubt, get help!

20. About Accordance • Accordance was founded in 2005, in response to Europe’s rapidly changing VAT situation. Our aim is to simplify the experience of cross-border VAT for businesses trading in Europe through a policy of practical engagement with our clients and their indirect tax issues. • It is essential for multi-territory businesses to receive expert and credible VAT advice. We have for several years been assisting a full spectrum of international businesses better manage cross-border VAT costs.

21. Contact us for your free initial consultation Telephone: +44 (0)1273 573950 Email: info@accordancevat.com Website: www.accordancevat.com Andy Spencer, Head of Consulting David Stokes, Director