The distance sales of goods concern the supply of goods to a private individual (B2C), where the goods are dispatched or transported from one Member State to another. An example of such situation is the sale of goods from a warehouse located in Poland to a private individual in Germany. The distance sale from Poland is currently taxable in the Member State of dispatch of the goods, unless this sale exceeds the distance sales limit to the country of destination or a declaration to the tax office for voluntary taxation in that country was submitted. These rules will change in 2021.
One VAT return for EU-wide sales
The new rules set a resignation of the application of the limits for distance sales and the new rules set a general rule that the distance sales are taxable in the country to which the goods are dispatched, i.e. the country of consumption. According to the planned changes, the distance sales (referred to in the Directive as intra-Community distance sales of goods) will be settled in a special way, i.e. through the VAT-OSS system. The seller will submit a special VAT return through this system to the tax authorities competent for its company seat (applies to EU-based sellers).
In this VAT return, the taxpayer will settle among other the intra-community distance sales of goods made throughout the EU, stating the net value, VAT rate, VAT due with division into individual countries of consumption. This VAT return will be submitted once a quarter to the end of the month following the given quarter. VAT due amount on these sales will be paid by the deadline for submitting a new VAT return to one bank account.
Entities covered by the new rules
Changes shall include entities which conduct the distance sales from one Member State to individuals in a Member State other than that in which the seller is established or has a place of business. An example would be a selling goods company based in Germany, which sends products from a warehouse in Poland to an individual in Austria.
The new rules will apply on a mandatory basis to companies whose net turnover in the current or previous calendar year exceeded EUR 10 000 for intra-Community distance sales of goods or services. Other entities with a lower turnover may voluntarily decide to apply a specific method of settlement of such sales.
It is also likely that the special VAT-OSS scheme will be available to entities conducting a distance sales from one Member State to individuals in another Member State where the seller is established. An example is a company established in Germany selling goods from a warehouse in Poland to an individual in Germany.
The new rules will enter into force in 2021
The new rules of taxation of distance sales are to be amended by EU Council Directive 2017/2455 of 5 December 2017 and EU Council Directive 2019/1995 of 21 November 2019. These acts were originally intended to apply from 01 January 2021. In accordance with the decision of the EU Council of 20 July 2020, this date was postponed to 01 July 2021.
Benefits for entrepreneurs
These changes introduce a number of simplifications for cross-border distance sales B2C of goods. In connection with these sales, the taxpayers will not have to register for VAT purposes in every country of consumption or country from which the goods are dispatched. This does not change the fact that the obligation to register for VAT purposes may arise as a result of other taxable transactions in a Member State, such as intra-Community transfers of goods.
It is already worth planning the possible benefits of the new regulations and planning a strategy to help develop the business. Our VAT specialists are willing to prepare your business for the revolutionary changes in VAT regarding the cross-border distance sales.
Authors: Małgorzata Justyńska, attorney at law and tax consultant; Paulina Kaźmierczak, tax consultant