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  • Distance selling and Intrastat in the European Union

    When does the obligation to register oneself as a person liable for value added tax in another country arise?

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Article:

Distance selling and Intrastat in the European Union – when does the obligation to register oneself as a person liable for value added tax in another country arise?

05 March 2020

Mati Madik , Accounting and Reporting Manager |
Jaanika Laansalu , Accounting and Tax Compliance Services Manager |

E-commerce is booming in the 21st century thanks to the popularity of the internet and social media. With just a few keystrokes it is possible to order the goods you desire from anywhere in the world, conveniently and without leaving home. Especially popular are shops offering different clothing brands, designer goods and children’s goods. This makes it easy for companies to sell goods to a much broader international base of consumers.

Within the meaning of the Value-Added Tax Act, such sales within the European Union are referred to as distance selling. European Union companies selling goods to, for example, Estonian non-taxable legal persons or individuals, are soon likely to face the obligation to register as a person liable for value added tax in Estonia. As long as the permitted limit for the country of destination has not been exceeded the goods can be sold at the tax rate of the company’s country of residence. For example, a German company can sell goods to Estonia at a VAT rate of 19% as long as the sales volume remains below EUR 35,000. Once the EUR 35,000 threshold has been met, the German company is obligated to register itself as a person liable for value added tax. In this example, the transferor of the goods is, as of the day of registering, required to issue a sales invoice at the applicable value added tax rate of the country of destination, meaning they must add 20% to the net price instead of 19%. The registration limits differ from country to country.

Another common method for selling goods within the borders of the European Union is at a 0% rate of value added tax, where one person subject to value added tax sells goods to another person subject to value added tax and value added tax is not added to the invoice. The invoice must include the value-added tax identification number of the seller as well as the buyer. The validity of the number can be controlled in the VAT Information Exchange System (VIES). The right to the intra-Community supply of goods and the right to use the 0% VAT rate is subject to the movement of goods from one Member State to another. The burden of proof falls on the seller of the goods. If the transferor is unable, for example, to prove the movement of goods to another member state through the use of accompanying documents or other documents proving the movement of goods, then the 0% tax rate may not be applied.

In the case of the intra-Community supply of goods, the seller has the right to apply the 0% tax rate and the buyer must reverse charge the invoice. The corresponding notation must also be made on the sales invoice (clause 15 (3) 2) or Article 138 of Directive 2006/112).

In addition, the large-scale sale or purchase of goods may give rise to an obligation to submit Intrastat if the purchase or sale within the borders of the European Union exceeds the statistical threshold established for the accounting year. The dispatch and arrival of goods are considered separately. At present, a limit of 130,000 is applicable in Estonia to dispatching, and EUR 230,000 to the arrival of goods. Data must begin to be reported once the statistical threshold is exceed. Intrastat must be submitted by Estonian companies as well as companies that are registered in Estonia as persons liable for value added tax if the statistical threshold is exceeded.

Intrastat data must be submitted separately for each month, by the 14th day of the following month, at the latest.

For the most part, value added tax returns and Intrastat are often looked at as two separate reports, and Intrastat is frequently viewed as a tedious statistical obligation. In fact, this report serves a slightly greater purpose. The European Union’s internal market and economy are monitored based on the information submitted to Eurostat (statistical office of the European Union) and policy as well as trade negotiations are prepared.

Increasingly, large companies have begun to emphasise the importance of submitting Intrastat reports and ensuring that the provided statistics are also consistent with the data presented in the value added tax return. If, when verifying value added tax returns, the Tax Board should discover any discrepancies between the declared 0% turnover and the Intrastat report, then, depending on the severity of the differences, this may lead to additional inquiries, control or a tax audit by the Tax Board.

The majority of companies are very well organised when it comes to value added tax, with the data being submitted either by an accountant or the relevant tax department. It would, however, be wise to outsource the service if you are looking for a 100% assurance that the declarations are always declared correctly, in accordance with applicable laws and tax rates, and submitted on time.

 

Table 1 Limits on distance selling and value added tax rates (as at 01.07.2019)

EU Member State

Limit on distance selling

Significantly reduced tax rate (%)

Reduced tax rate (%)

Standard tax rate (%)

Parking tax rate (%)

Austria

€ 35,000

-

10 / 13

20

13

Belgium

€ 35,000

-

6 / 12

21

12

Bulgaria

BGN 70,000

-

9

20

-

Croatia

HRK 270,000

-

5 / 13

25

-

Cyprus

€ 35,000

-

5 / 9

19

-

Czech Republic

CZK 1,140,000

-

10 / 15

21

-

Denmark

DKK 280,000

-

-

25

-

Estonia

€ 35,000

-

9

20

-

Finland

€ 35,000

-

10 /14

24

-

France

€ 35,000

2.1

5.5 / 10

20

-

Germany

€ 100,000

-

7

19

-

Greece

€ 35,000

-

6 / 13

24

-

Hungary

HUF 8,800,000

-

5 / 18

27

-

Ireland

€ 35,000

4.8

9 / 13.5

23

13.5

Italy

€ 35,000

4

5 / 10

22

-

Latvia

€ 35,000

-

5 / 12

21

-

Lithuania

€ 35,000

-

5 / 9

21

-

Luxembourg

€ 100,000

3

8

17

14

Malta

€ 35,000

-

5 / 7

18

-

The Netherlands

€ 100,000

-

9

21

-

Poland

PLN 160,000

-

5 / 8

23

-

Portugal

€ 35,000

-

6 / 13

23

13

Romania

RON 118,000

-

5 / 9

19

-

Slovak Republic

€ 35,000

-

10

20

-

Slovenia

€ 35,000

-

9.5

22

-

Spain

€ 35,000

4

10

21

-

Sweden

SEK 320,000

-

6 / 12

25

-