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's the gross turnover achieved in online retail 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 determine success or failure in the mail order business.
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 complied with.
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 trade online abroad is of course also faced with the various regulations and specifications 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 differing areas:
- Safety requirements and standards
- Regulations and prohibitions
- Packaging guidelines (recycling regulations)
- Warranty obligation
- Mandatory labelling
- Return of Goods Policy
These requirements, which are sometimes regulated differently, must be individually reviewed and adapted depending on the country, industry and product. This is usually done relatively quickly and a one-time consideration and adjustment is often sufficient.
The situation is different in the tax area. Here, certain aspects have to be considered continuously and especially the sales tax causes headaches for many traders.
Trade in Europe leads to various tax tasks both at home and abroad in the EU.
Whether it's customs duties, getting 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 filing various reports and tax returns, it is also necessary to ensure correct taxation and valid VAT registrations in all necessary countries.
Failure to do so may result in severe penalties and other consequences, such as exclusion from a sales platform.
VAT is a consumption tax levied on all services and goods within the EU and is designed to ensure fairness at European level.
Other types of excise taxes include:
- the tobacco tax,
- the mineral oil tax and
- the alcohol tax.
In principle, any company established in an EU member state is liable for VAT. The exception to this rule are companies that small business regulation in addition to.
Under certain conditions, however, in addition to the existing tax number in the country of origin, an application for a VAT number must also be made in countries to or from which sales are made. a sales tax number must also be be applied for.
So when is it necessary to register abroad? In short play here
- the storage of the goods and
- the achievement of the delivery threshold plays the decisive role.
Storage in other EU countries leads to a local VAT registration obligation. This mainly affects Amazon merchants who can store their goods in up to 7 different countries within the EEA.
Fulfilment by Amazon (FBA) lets online retailers on Amazon pass on storage and shipping to the e-commerce giant for an appropriate fee.
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 Program Amazon offers online merchants who already store in Germany and want to sell from there or start doing so, the possibility to additionally store in Poland and the Czech Republic.
This can be worthwhile because of the lower fulfilment and storage fees. However, due to the storage there, VAT registration in Germany as well as VAT numbers in Poland and the Czech Republic are obligatory.
exceeding the delivery threshold
Reaching an annual supply threshold for mail order sales can also lead to the obligation to register and make a VAT number in the country of destination mandatory.
This limit can be reached by cross-border mail order sales to the final consumer within one calendar year. In doing so each country has its own delivery threshold. Inmost cases, this amounts to approx. 35,000 euros.
For the purpose of reaching 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. Here, according to §3 of the Value Added Tax Act (UStG), the mail order regulation applies, 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, do not play a role for the delivery threshold and can be safely disregarded.
The European Union's intra-Community trade statistics, or Intrastat for short, are used to record the movement of goods between Member States. However, this is not exclusively about goods bought and sold, but goods that have been moved for another reason are also 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 returns.
ImportantWhich and how much information to provide depends on the value of the goods.
Exemption from the obligation to notify
There are also thresholds to be observed for Intrastat declarations, similar to the VAT registration. The mode of operation is also basically the same.
Companies are exempt from the reporting requirement if their shipments to other EU countries did not exceed the value of 500,000 euros in the previous year. Otherwise, the reporting obligation applies.
IDEV stands for Internet Data Collection in the Network and makes it possible to carry out Intrastat declarations online. IDES is a free software offered by the Federal Statistical to create Intrastat declarations offline. These can then be uploaded afterwards.
Customs duties may be incurred when shipping goods to a country outside the EU. Of course, this must be clarified in advance and, if necessary, customs-related additional costs must also be included in the pricing and clearly indicated.
With the MADB of the European Union, you can 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. This not only ensures greater security, because these data are also used for statistical purposes.
This is intended to simplify customs clearance between EU member states. The EORI number must be entered in a large number of documents, especially when corresponding with the authorities. After registration, it should take a maximum of 3 days until the EORI number lands in your email inbox.
The number itself consists of 17 characters, with the first two characters representing the country code in most cases.
ImportantPrivate individuals do not need an EORI number
Even though all EU companies must in principle have a VAT number, it should be noted that VAT does not always necessarily apply. In addition to the exclusion due to the small business regulation, it should be noted in principle that the location and type of customer are decisive.
This means that it depends on the respective import and export country as well as on the type of business partner - i.e. whether it is another company or a private individual.
To illustrate, here are possible scenarios and how they affect VAT and supply thresholds and the associated reporting requirements.
Delivery of goods within the EU: B2B
When a company sells to another company within the EU, it is taxed in the respective country of destination in accordance with applicable law. Therefore, an invoice can 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. That is why it is so important to indicate the VAT number on the invoice.
Delivery of goods within the EU: B2C
In the case of B2C sales between member states of the EU, the so-called mail order regulation governs all intra-Community deliveries.
The mail order regulation is part of the place-of-supply determination for VAT purposes and has the effect that shipments to private individuals within the EU are taxable in the country of the recipient, as long as a certain threshold is not exceeded with regard to intra-Community deliveries.
Overall, taxability in Germany also depends on the respective delivery threshold in the country of destination. If this is exceeded within a calendar year, the taxability changes - but only if it really is an intra-Community transfer in accordance with §3c para. 3 UStAE.
Intra-Community supplies must be included in VAT returns and quarterly in the recapitulative statement.
Deliveries of goods to non-EU countries
Last but not least: sales from the EU to non-EU countries.
Online traders who sell to non-EU countries can generally issue their invoices without VAT. However, the exemption from VAT must be indicated in the invoice.
ImportantAs a trader, you must 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 in his own country.
Since the tax tasks for online merchants change regularly, and ignoring them can lead to serious problems, here's a little preview of the coming year. What will change and what measures will 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 geo-blocking;
- revised consumer protection regulations that will come into force in 2020;
- new VAT rules for the online sale of goods and services, which will come into force in 2021.
Removing unfounded cross-border barriers, facilitating low-cost cross-border parcel delivery, protecting customer rights and promoting cross-border access to online content are cornerstones of the Digital Single Market Strategy.
You can find more detailed information about Quick Fixes in this article.
Traders who want to sell their goods in more than just one country should first find out about obligations, requirements and the administrative burden. Of course, entering 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 further complicated by the fact that very few regulations are identical across countries. For example, values and amounts to be considered, as well as required documentation, 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.
Because in the long run, trading abroad is linked to a flood of tasks for shop operators. However, those who find the right partners and can largely automate their processes are not only equipped for all eventualities - they also have more time for what is really important.
Images: rupixen | unsplash, hellotax