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Monday 12 May 2014
What is distance selling?
Distance selling takes place when a vendor in one EU Member State sells and delivers goods to a consumer (who is not VAT registered) in a second EU Member State (B2C sale). Distance sales are most commonly made via online shops, or catalogues.
Consumers who are not VAT-registered include:
· Private individuals
· Public bodies
· Certain small businesses
· Businesses that can't register for VAT because their activities are exempt
Distance selling thresholds and the place of supply rules
A distance seller who sells goods to consumers in his own EU Member State will always charge the applicable VAT rate of that Member State. Should he be making sales to consumers in other EU Member States, he will need to consider the distance selling thresholds. Once the distance seller threshold is exceeded in a second EU Member State, the place of supply will change from his Member State of establishment to that second Member State. This means that the distance seller, upon exceeding the distance seller threshold, would have an obligation to VAT register in that second Member State, and charge the applicable VAT rate of that second Member State when selling to consumers. Should the Intrastat threshold for arrivals be exceeded in that second EU Member State, the vendor will also be obliged to file Intrastat reports.
The distance seller thresholds range between €35,000 and €100,000 (or the equivalent in local currency) and serve to prevent unfair competition within the EU, where traders established in Member States with lower VAT rates would have an unfair advantage over those traders established in Member States with higher VAT rates (VAT rates within the EU currently range from 15% to 27%).
A UK based distance seller is selling goods to consumers in Germany. The distance seller threshold in Germany is currently €100,000. The UK based distance seller will charge UK VAT on the first €100,000 net sales made to consumers in Germany. Once the distance seller threshold of €100,000 has been exceeded, the place of supply of the sale of the goods will move from the UK to Germany, and the UK based distance seller will be required to VAT register in Germany and charge the applicable German VAT rate on sales of goods to consumers in Germany.
It is essential for distance sellers to monitor their net sales to consumers in the EU to ensure that the distance seller threshold has not been exceeded. Penalties and interest can be imposed for late VAT registration and the late payment of VAT in a Member State where the threshold was exceeded and the distance seller did not register for VAT. The VAT registration process in most EU Member States typically takes between 2-4 weeks, although in some Member States it can also take a little longer.
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