With its starting date of 1 July this year, the EU one-stop VAT system provides a number of practical simplifications for companies involved in online sales. However, many firms in e-commerce are unsure if it is worth entering the optional one-stop OSS system at all, and how the one-stop shop system and the traditional VAT system relate to each other.
The system is worthwhile for distance selling companies that sell goods online to private customers in other EU Member States. Companies whose distance sale turnover does not exceed 10,000 Euros per year altogether can continue to make EU sales with their own domestic VAT rate. The OSS system is not applicable to sales where the trader sells to VAT subject businesses in any EU Member State, i.e. the customers are not private individuals.
Therefore, if the trading company sells to different countries of the Union, both to private individuals and businesses, two types of VAT accounting will be required, traditional VAT accounting and the OSS one-stop scheme. For example, if a Hungarian trader sells via the Internet to private individuals (B2C) in Austria, these sales will be subject to Austrian VAT, which can be accounted for in the one-stop shop OSS. If the trader has not joined the one-stop shop, he must obtain an Austrian VAT tax number and submit a conventional Austrian VAT return. Sales to Austrian companies (B2B) will be community sales within the framework of the traditional Hungarian VAT system.
Companies operating outside of the European Union can benefit from the system either through their permanent establishment in the EU or by entrusting a VAT intermediary based in the European Union. Many non-EU companies have opted for establishing a new company in Hungary in order to comply with the current VAT rules. In addition to having a subsidiary in the EU, this also provides the advantage of being able to operate without a VAT intermediary and to benefit from optimal logistics and warehousing possibilities.
For faster delivery, many trading companies deliver from a warehouse in another EU country. It is then essential that the company registers for VAT in the country concerned, for example in Germany. Deliveries from Hungary to the German warehouse must be accounted for as transfer of goods in both the Hungarian and German VAT returns. Sales from this warehouse to Germany will be included in the local German VAT return.
Sales from the German warehouse to private customers in other EU Member States, e.g. in the Netherlands, will be accounted for under the OSS one-stop shop. If the company has not joined the one-stop shop, it will have to apply for a Dutch VAT number and pay Dutch VAT on sales from Germany to Dutch private individuals. If the Dutch customer is a business, the sale will essentially be a tax-free Community sale under the German Community VAT number.
The VAT one-stop shop imposes a number of obligations on Internet platforms such as Amazon or E-Bay. However, for traders selling on the above platforms this results in virtually no simplifications in terms of VAT returns and foreign VAT registration obligations. VAT accounting for deliveries to an Amazon warehouse (FBA) abroad is practically the same as if the trader delivered to an independent warehouse in any other EU country, and the VAT accounting for sales to customers also remains unchanged. An exception to this is the case where a trader sells a product imported from outside the EU with a value of less than € 150 through the platform, as in the latter case the platform will be liable for the VAT on the sale.
In summary, it is worthwhile for companies to join the OSS one-stop shop VAT system if they sell goods online to private individuals in other EU Member States. The system is primarily beneficial for e-commerce with a higher turnover, although the details of the rules are complicated.
If sales are made to other businesses (B2B) or deliveries are to private people, but they take place from a warehouse in another EU Member State to the same Member State where the warehouse is located, it is usually not worthwhile to join the OSS system. If the trader maintains a local warehouse in another EU Members State, it is unavoidable to register for VAT and file VAT returns in the country concerned.
The application of the complex VAT legislation of many different EU Member States constitutes a challenge for most trading companies. We are happy to help you apply the rules correctly and to coordinate and submit your VAT returns in all EU Member States, relying on our international network of partners.
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