There are special tax guidelines and obligations for cross-border shipping to follow as an online trader. If you sell goods to (EU) countries online, you should know these guidelines and adhere to them. Maximilian from hellotax explains what you have to consider when doing international online business and what will change in the future.
65 billion euros - that is the gross turnover achieved in online trading in 2018. The industry is growing and growing and there is no end in sight. Above all, the decision to sell nationally or internationally can often make the difference between success and failure in mail order.
Of course this does not mean that selling abroad is always the best solution. It depends on the individual circumstances. An expansion of the sales market is desirable per se, but cross-border shipping is also associated with a large number of obligations and guidelines that must be observed.
What these are, how to master them and what will change in the future, you will learn in this article. Since sales tax in particular can make the life of an online retailer more difficult, we want to focus on this sub-area.
Anyone who decides to do online business abroad is of course also faced with the different regulations and requirements of the different countries. These are, at least within the European Union, often similar, but only often.
Product-specific requirements and guidelines must be observed here in order to enable smooth trading. After all, not everything can be sold in the same way in every country - at least not always.
Here is a cross-section of the possible different areas:
- Security specifications and standards
- Regulations and prohibitions
- Packaging guidelines (recycling regulations)
- Labelling obligation
- Return of goods regulations
These requirements, which in some cases are regulated differently, must be reviewed and adapted individually for each country, industry and product. This is usually done relatively quickly and a one-off consideration and adaptation is often sufficient.
The situation is different in the tax field. Here, certain aspects have to be observed continuously and especially the sales tax is a headache for many traders.
Trade in Europe leads to various tax issues, both domestically and in other EU countries.
Whether it's customs duties, obtaining a new tax number or related documentation: especially when you start selling cross-border, you need to be aware of the importance of the obligations involved. As well as the additional administrative burden.
In addition to submitting various reports and tax returns, correct taxation and valid VAT registrations in all necessary countries must also be ensured.
Failure to do so may result in severe penalties and other consequences, such as exclusion from a sales platform.
The turnover tax is a consumption tax levied on all services and goods within the EU, which is intended to ensure fairness at European level.
Other types of excise duty are:
- the tobacco tax,
- the mineral oil tax, and
- the alcohol tax.
In principle, every company domiciled in an EU member state is subject to VAT. Exceptions to this rule are companies that Small business regulation in addition to.
However, under certain conditions, in addition to the existing tax number in the country of origin, the following must also be provided in countries to or from which sales are made applied for a VAT number for the supervisory authorities.
So when is registration abroad required? In short, play here
- the storage of the goods, and
- the achievement of the delivery threshold is the decisive factor.
Storage in other EU countries leads to an obligation to register the value added tax on site. This mainly affects Amazon traders, who can store their goods in up to 7 different countries within the EEA.
With Fulfilment by Amazon (FBA), online merchants at Amazon can, for a fee, outsource storage and shipping to the eCommerce giant.
Important: the registration of a VAT number abroad always leads to ongoing administrative tasks.
If goods are then stored in these warehouses (depending on the FBA service selected), then VAT registration is mandatory in each of these storage countries.
ExampleWith the Central Europe Programme Amazon offers online merchants who already store in Germany and sell from there or want to start selling from there the possibility to store additionally in Poland and the Czech Republic.
This may well be worthwhile due to the lower fulfilment and storage fees. However, because of the storage there, in addition to VAT registration in Germany, VAT numbers in Poland and the Czech Republic will also be mandatory.
Exceeding the delivery threshold
Even the attainment of an annual delivery threshold for mail-order business may lead to the obligation to register and make a VAT number in the destination country mandatory.
This limit may be reached by cross-border mail order to the final consumer within one calendar year. In doing so each country has its own delivery threshold. MIn any case, this amounts to approximately 35,000 euros.
To reach this delivery threshold, net sales in a given country are considered. However, this only applies to B2C sales, i.e. sales to the end customer. In this case, the mail order regulation applies in accordance with §3 of the German Value Added Tax Act (UStG), which states that shipments within the EEA are taxable in the country of the recipient.
Sales between companies, i.e. B2B (Business to Business), on the other hand, play no role in the delivery threshold and can be safely disregarded.
The intra-trade statistics of the European Union, Intrastat for short, serve to record the trade in goods between the member states. However, this does not only concern goods bought and sold, but also goods that have been moved for another reason are recorded in Intrastat.
Who must submit these reports?
Every company registered for VAT in the EU that trades goods across borders with other EU countries must submit Intrastat declarations.
Important: Which and how much information has to be given depends on the value of the goods.
Exemption from the notification requirement
There are also thresholds to be observed for Intrastat declarations, similar to those for VAT registration. The way they work is also basically the same.
Companies are exempt from the obligation to report if their shipments to other EU countries did not exceed the value of 500,000 euros in the previous year. Otherwise the obligation to report applies.
IDEV stands for Internet data collection in a network and enables Intrastat declarations to be made online. IDES is a database developed by the Federal Statistical Office offered free of charge software to produce Intrastat declarations offline. These can then be uploaded afterwards.
Customs duties may apply when goods are shipped to a country outside the EU. This must of course be clarified in advance and, if necessary, additional costs due to customs duties must also be included in the pricing and clearly indicated.
Find all tipps in our MADB of the European Union it is possible to find out which goods have to be cleared through customs and which do not.
The EORI number is an identification number used for the exchange of information between economic operators and the customs administration.
As this number is used throughout Europe, it allows for more efficient data collection. Not only does this increase security, but the data is also used for statistical purposes.
This is intended to simplify customs clearance between EU member states. For example, the EORI number must be indicated in a large number of documents, especially when corresponding with the authorities. After registration, it should not exceed 3 days until the EORI number in your e-mail inbox.
The number itself consists of 17 characters, whereby the first two characters mostly stand for the country code.
Important: Private individuals do not need an EORI number
Although all EU businesses must in principle have a VAT number, it should be noted that VAT is not always compulsory. In addition to the exclusion by the small business regulation, it should be noted in principle that the place and type of customer are decisive.
This means that it depends on the respective import and export country and on the type of business partner - whether it is another company or a private individual.
To illustrate now possible scenarios and how these affect the VAT and delivery thresholds and the associated reporting obligations.
Goods delivery within the EU: B2B
If a company sells to another company within the EU, it will be taxed according to the applicable law in the country of destination. An invoice can therefore be issued without sales tax.
The customer, the company in the destination country, must then pay the VAT itself, the so-called reverse charge procedure. This is why it is so important to indicate the VAT number on the invoice.
Goods deliveries within the EU: B2C
In the case of B2C sales between EU member states, all intra-Community deliveries are regulated in the so-called mail order regulation.
The Distance selling scheme is part of the turnover tax localisation and has the effect that consignments to private individuals within the EU are taxable in the country of the recipient as long as a certain limit has not been exceeded with regard to intra-Community supplies.
All in all, the controllability in Germany therefore also depends on the respective delivery threshold in the country of destination. If this threshold is exceeded within a calendar year, the taxability changes - but only if it really is an intra-Community transfer according to §3c para. 3 UStAE.
Intra-Community supplies must be included in VAT returns and quarterly in the recapitulative statement.
Goods deliveries to non-EU countries
Last but not least: sales from the EU to non-EU countries.
Online merchants selling to non-EU countries can generally issue their invoices without VAT. However, the invoice must contain a reference to the VAT exemption.
Important: As a trader you have to prove that the goods have arrived in a non-EU country.
Any taxes incurred, as well as costs for customs clearance, are to be paid by the customer himself in his own country.
Since the tax tasks for online merchants change regularly, and ignoring them can lead to serious problems, here is a small preview of the coming year. What is changing and what measures do merchants selling abroad have to take?
What are they working on?
The European Commission wants to remove barriers for eCommerce traders so that consumers have full access to all goods and services offered online by EU businesses. These include:
- the revised Payment Services Directive and new rules already in force for cross-border parcel services;
- new rules to prevent unjustified geoblocking;
- revised consumer protection rules that will enter into force in 2020;
- new VAT rules for the online sale of goods and services, which will come into force in 2021
Removing unjustified cross-border barriers, facilitating cost-effective cross-border parcel delivery, protecting customers' rights and promoting cross-border access to online content are cornerstones of the digital internal market strategy.
More detailed information about Quick Fixes can be found at this article.
Traders who want to sell their goods not only in one country should first inform themselves about obligations, requirements and the administrative burden. Of course, opening up new markets is always a lucrative option, but it also leads to various tasks, especially in the area of sales tax.
There are many different processes and challenges to consider. This is made more difficult by the fact that very few regulations are identical across countries. For example, values and amounts to be observed and required documents are often handled slightly differently in each country.
Choosing a reliable service provider and using certain tools can reduce your overall workload and is therefore highly recommended.
After all, in the long term, trading abroad is associated with a flood of tasks for shop operators. However, if you find the right partners and can automate your processes to a large extent, you are not only prepared for all eventualities - there is also more time for what is really important.
pictures: rupixen | unsplash, hellotax