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VAT and Custom Duties on Crossborder Ecommerce Sales

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VAT and Custom Duties on Crossborder Ecommerce Sales by Alan Rhode from Taxmen.eu

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VAT and Custom Duties on Crossborder Ecommerce Sales

  1. 1. VAT and Customs Duties on Crossborder E-commerce Sales Alan M. Rhode ECOMMERCE +SHOP TECH Helsinki, 14 March 2018
  2. 2. Ecommerce export VAT vs. Sales tax E-SHOP 2 Customs duties Packaging tariffs
  3. 3. VAT vs. Sales Tax • Most world countries apply consumption taxes on e- commerce sales (B2C). • Europe: VAT, applied in each country according to a EU-harmonized framework. • U.S., Canada e other non-EU countries: Sales Taxes. • In general, Sales Taxes only apply to B2C sales and at lower rates than VAT. 3
  4. 4. VAT • The VAT scenario for e-commerce sales (B2C): 1. Shipment + delivery to Finland= Finnish VAT; 2. Shipment from Finland to another EU state= distance selling (see slide nr. 5); 3. Shipment from Finland to non-EU countries= VAT zero rated in Finland, as long as the merchant is able to prove that the goods have left the EU. Customs duties or consumption tax are often due in the non-EU destination country. 4
  5. 5. EU Distance selling • “EU Distance selling” means: sales of goods from the EU to consumers in another EU country, but only when the shipment of the goods is made under the name and/or on behalf of the seller. • EU distance selling does not include those cases when: a. Shipment is made on behalf of the consumer; or b. The customer collects the items personally or arranges the collection; or c. It is a business-to-business transaction; or d. The products are delivered outside the EU. 5
  6. 6. EU distance selling (2) • Distance sales of goods from Finland to another EU country are subject to Finnish VAT as long as the merchant does not exceed the yearly revenue threshold set by the EU state of destination. • The revenue thresholds vary among EU states (€35k /100k). • Once the threshold is met, the Finnish merchant must apply/report/pay VAT on the sales in the EU country of destination (EU 2) for the remaining part of that calendar year (Y1) and the entire following year (Y2). 6
  7. 7. EU distance selling (3) • If during Y2, the Finnish merchant fails to meet the yearly revenue threshold in EU 2, from Y3 the merchant will start applying Finnish VAT again. • The merchant is allowed to opt for the application of another EU state’s VAT on distance sales to the latter EU state. • The option enables the Finnish merchant not to constantly monitor revenues made with sales to the other EU country and to avoid switching back and forth from Finnish VAT to the other EU country’s VAT. 7
  8. 8. EU distance selling (4) • Example: Germany: distance selling VAT threshold: Eur 100,000 per year ✓ In 2018, a Finnish merchant never reaches the Eur 100,000 threshold with sales to German consumers: the merchant will continue applying Finnish VAT to all sales to German consumers (24%); ✓ On the contrary, if during 2018 our Finnish merchant reaches the Eur 100,000 threshold, the merchant will have to apply German VAT to all B2C sales for the remainder of 2018 and all 2019 (19%); 8
  9. 9. EU distance selling (5) ✓ If in 2019 (or a subsequent year), the Finnish merchant does not reach the German threshold again (Eur 100k), from 2020 the merchant will start applying Finnish VAT on all German B2C sales; ✓ Alternatively, the Finnish merchant will be able to opt for the application of German VAT (even if not mandated by law). 9
  10. 10. EU distance selling today: issues a) The merchant is required to constantly monitor EU crossborder sales; b) Potential VAT identification in multiple EU states; c) In the latter case, the merchants must abide to multiple invoicing and book-keeping requirements; d) Potential audits by other EU tax authorities. 10
  11. 11. The 2021 VAT reform • In 2017, the EU approved a reform overturning the VAT treatment of distance sales. • From 1 January 2021, VAT will always apply in the EU country where the consumer receives the goods. • The current thresholds will be removed (€35/100k). • Facilitation: merchants will use the Mini One Stop Shop (MOSS) to report/pay VAT in other EU states. • The MOSS is an electronic interface used for to report and pay VAT on crossborder supplies of B2C digital services since 2015. 11
  12. 12. The 2021 VAT reform (2) • Invoicing and book keeping rules of the home country of the merchant will also apply to consumer sales to other EU countries. • De minimis threshold: sales by merchants with an yearly EU turnover ≤ €10,000 will still be subject to VAT in the country of dispatch. 12
  13. 13. Customs duties • No outbound duties are due in Europe on exports. • Shipments may be subject to inbound import duties in the non-EU country of destination. • Customs duties are usually applied on the commercial value indicated on the accompanying invoice. • Cost Insurance Freight (CIF) vs. Free On Board (FOB). 13
  14. 14. Customs duties: DDP vs. DDU • EU merchants many ship parcels to non-EU consumers under a Delivery Duty Paid (DDP) or, alternatively, Delivery Duty Unpaid (DDU) solution. • DDU: the customer will get contacted by the local customs and mayhave to settle all import duties in order for customs to release the shipment. • DDP: the merchant decides to be responsible for paying the duties. Most likely, the seller includes these duties at checkout and collects payment from the customer in advance. The courier will act as the customs broker. 14
  15. 15. Customs duties: free trade agreements • If the EU and the non-EU destination country have entered into a Free Trade Agreement, no inbound customs duties will apply if the products originate from Europe. • The rules of origin included in the FTA will determine whether a product originates from Europe. • Inbound VAT or Sales Taxes will still apply (=domestic transactions). 15
  16. 16. Packagin tariffs/Green dot • Most EU countries impose to non-established merchant the payment of packaging tariffs on the packaging used to deliver parcels to local consumers (Green dot). • In many cases, registration with the competent national recovery organization and payment of packagin tariffs is required without any minimum packaging threshold requirement (Austria, France, Germany, Spain). • Merchants are usually allowed refund of the packaging tariffs paid in their own country on packaging used to export products. 16

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