In online trade (e-commerce), special tax guidelines and obligations apply to cross-border shipping. So if you sell goods abroad (in the EU) with your online store, you should know and comply with these requirements. Maximilian from hellotax explains what you need to bear in mind when selling online internationally 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 make the difference between success and failure in the mail order business.
Of course, this does not mean that selling abroad is always the best solution in principle. It depends on the individual circumstances. Expanding 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.
In this article, you can find out what these are, how to master them and what will change in the future. As VAT in particular can make the life of an online retailer more difficult, we have shed particular light on this area.
Cross-border mail order business
If you decide to trade online abroad, you will of course be faced with the various regulations and requirements of the different countries. These are often similar, at least within the European Union, but only often.
Product-specific requirements and guidelines must be observed in order to facilitate smooth trade. 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:
- Safety specifications and standards
- Regulations and bans
- Packaging guidelines (recycling regulations)
- Warranty obligation
- Labeling obligation
- Return of goods regulations
These requirements, some of which are regulated differently, must be individually reviewed and adapted depending on the country, industry and product. This is usually done relatively quickly and a one-off consideration and adjustment is often sufficient.
The situation is different in the tax area. There are always certain aspects to consider here, and VAT in particular is a headache for many retailers.
Tax tasks for online retailers abroad
Trade in Europe leads to various tax tasks both domestically and in other EU countries.
Whether it's customs duties, obtaining a new tax number or the associated documentation: especially when you start selling cross-border, you need to be aware of the importance of the associated obligations. As well as the additional administrative burden.
In addition to submitting various reports and tax declarations, correct taxation and valid VAT registrations must also be ensured in all necessary countries.
Non-compliance may result in severe penalties and other consequences, such as exclusion from a sales platform.
VAT: When to register?
VAT is a consumption tax levied on all services and goods within the EU, which is intended to ensure fair treatment at European level.
Other types of excise tax are:
- the tobacco tax,
- the mineral oil tax and
- the alcohol tax.
In principle, every company based in an EU member state is liable for VAT. Exceptions to this are companies that make use of the small business regulation.
Under certain circumstances, however, in addition to the tax number already available in the country of origin, a VAT number must also be applied for in countries to or from which sales are made.
So when is it necessary to register abroad? In short, this is where
- the storage of goods and
- the decisive role in reaching the delivery threshold.
Storage of goods abroad
Storage in other EU countries leads to an obligation to register for VAT locally. This mainly affects Amazon sellers who can store their goods in up to 7 different countries within the EEA.
With Fulfilment by Amazon (FBA), online retailers can outsource storage and shipping to the e-commerce giant for a fee.
Important: registering a VAT number abroad always leads to ongoing administrative tasks.
If goods are then stored in these warehouses (depending on the FBA service selected), VAT registration is mandatory in each of these warehouse countries.
Example: With the Central Europe Program, Amazon offers online retailers who already store in Germany and want to sell or start selling from there the opportunity to also store in Poland and the Czech Republic.
This may well be worthwhile due to the lower fulfillment and storage fees. However, because the goods are stored there, VAT numbers in Poland and the Czech Republic are mandatory in addition to VAT registration in Germany.
Exceeding the delivery threshold
Reaching an annual delivery threshold for the mail order business can also lead to a registration obligation and make a VAT number mandatory in the destination country.
This threshold can be reached through cross-border mail order sales to the end consumer within a calendar year. Each country has its own delivery threshold. In most cases, this is around 35,000 euros.
Net sales in a specific country are taken into account to determine whether this delivery threshold has been reached. However, this only applies to B2C sales, i.e. sales to the end customer. According to Section 3 of the German Value Added Tax Act (UStG), the mail order regulation applies here, which states that shipments within the EEA are to be taxed in the country of the recipient.
Sales between companies, i.e. B2B (business to business), do not play a role in the delivery threshold and can be safely disregarded.
Notifications: Intrastat & Co
The European Union's intra-trade statistics, or Intrastat for short, are used to record the movement of goods between member states. However, it is not only about goods bought and sold, but goods that have been moved for other reasons are also recorded in Intrastat.
Who has to 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 must be provided depends on the value of the goods.
Exemption from the reporting obligation
There are also threshold values to be observed for Intrastat declarations, similar to VAT registration. The mode of operation is also basically the same.
Companies are exempt from the reporting obligation if their shipments to other EU countries did not exceed the value of EUR 500,000 in the previous year. Otherwise, the reporting obligation applies.
IDEV/IDES procedure
IDEV stands for Internet data collection in a network and enables Intrastat declarations to be carried out online. IDES is a free software program offered by the Federal Statistical Office for creating Intrastat declarations offline. These can then be uploaded afterwards.
Customs regulations for e-commerce abroad
Customs duties may be incurred when shipping goods to a country outside the EU. This must, of course, be clarified in advance and, if necessary, customs-related additional costs must also be included in the pricing and clearly indicated.
The European Union's MADB can be used to find out which goods are subject to customs duty and which are not.
EORI number
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, data can be collected more efficiently. This not only ensures greater security, as this data is also used for statistical purposes.
This is intended to simplify customs clearance between EU member states. The EORI number must be quoted in a large number of documents, especially when corresponding with the authorities. After registration, it should take a maximum of 3 days for the EORI number to arrive in your email inbox.
The number itself consists of 17 characters, with the first two characters in most cases representing the country code.
Important: Private individuals do not need an EORI number
International online trade: B2B vs. B2C
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 that the location and type of customer are decisive.
This means that it depends on the respective import and export country and the type of business partner - i.e. whether it is another company or a private individual.
To illustrate this, here are possible scenarios and how they affect VAT and the delivery thresholds and the associated reporting obligation.
Delivery of goods within the EU: B2B
If a company sells to another company within the EU, it is taxed in the country of destination in accordance with the applicable law. An invoice can therefore be issued without VAT.
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 state the VAT number on the invoice.
Deliveries of goods 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 mail order regulation is part of the VAT local determination 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 limit is not exceeded with regard to intra-Community deliveries.
Overall, taxability 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 in accordance with Section 3c (3) UStAE.
Important
Deliveries of goods to non-EU countries
Last but not least: sales from the EU to non-EU countries.
Online retailers who sell to non-EU countries can generally issue their invoices without VAT. However, reference must be made to the VAT exemption in the invoice.
Important: As a retailer, 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 their own country.
Changes and quick fixes 2020
As the tax tasks for online retailers change regularly and failure to comply can lead to serious problems, here is a small preview of the coming year. What is changing and what measures do retailers selling abroad need to take?
What is being worked on?
The European Commission wants to remove barriers for e-commerce traders so that consumers have full access to all goods and services offered online by companies in the EU. This includes:
- the revised Payment Services Directive and new regulations 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 regulations 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 deliveries, 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.
Conclusion for online trading abroad
Traders who want to sell their goods in more than just one country should first find out about obligations, requirements and the administrative effort involved. Of course, opening up new markets is always a lucrative option, but it also leads to a wide range of tasks, especially in the area of VAT.
There are many different processes and challenges to consider. To make matters worse, very few regulations are identical across countries. For example, the values and amounts to be taken into account as well as the 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.
Because in the long term, trading abroad is associated with a flood of tasks for store 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
