We have already informed you several times about the rules of taxation of cross-border mail order. According to the assumptions of the EU e-commerce tax package, the rules of VAT taxation in the field of e-commerce will be changed from 1 July 2021. The member states of the European Union are working on the implementation of these changes so that they can become part of the national legal order.
Entrepreneurs should already familiarise themselves with the draft changes to Polish regulations published by the Ministry of Finance. Knowing about the future changes will allow to plan in advance the appropriate procedures to maintain or increase the profitability of the business.
New definitions for mail order sales transactions
The existing nomenclature related to mail order sales is not clear. The new Regulations seek to introduce a common definition of intra-Community distance selling of goods, which is a supply of goods dispatched or transported by or on behalf of the supplier. This applies where the supplier is indirectly involved in the supply or dispatch of goods from the territory of a Member State other than the place of transfer or transport to an individual customer (who is not a trader or taxable person).
Distance selling of imported goods
The new rules are also intended to define the distance selling of imported goods (SOTI). Following the amendment of the national legislation, the new explanation of the above term will be based on the assumptions of the definition of intra-Community distance sales of goods. This term is understood to mean the supply of goods dispatched or transported from the territory of a third country to the territory of the European Union.
Uniform threshold for turnover and lowering of the limit for registration for VAT purposes
Under current legislation, taxpayers making distance sales to consumers from other EU Community countries must register for VAT purposes. Such a measure is required for the taxation of sales in the country of purchase by the consumer if the value of the goods sold exceeds the applicable thresholds for registration in a given country. Until now, EU member states were free to set the thresholds.
However, with the planned implementation of the EU regulations, this right will change. The e-commerce package assumes a uniform turnover threshold for all member states of EUR 10 thousand, above which a seller must register for VAT in the country of consumption or use the VAT-OSS procedure.
VAT-OSS prevents registration of a VAT payer in many member states
The lowering of the threshold will mean that only a small number of traders making distance sales will be able to account for VAT on these transactions in the country where they carry out their business activities. In order to avoid the obligation to register for VAT in many Member States and to minimise the associated costs, traders can benefit from the simplification of VAT reporting through the VAT One Stop Shop (VAT-OSS) system. It will continue to be possible to account for VAT in each country of consumption according to the current rules.
VAT IOSS on sales of products imported from third countries
Taxpayers will also be able to use the VAT-IOSS (VAT Import One Stop Shop) procedure. It will simplify the procedure for those businesses that sell goods by mail order that were previously imported from third countries. However, this possibility requires that the goods fulfil an additional condition. They must not be subject to VAT and their value must not exceed 150 euros.
No VAT exemption for small consignments
One of the assumptions of the new e-commerce package is also the abolition of tax exemptions for consignments imported from third countries whose total value does not exceed 22 euros. This change is intended to restore the competitive balance for EU suppliers. From 1 July 2021, postal operators will take over some of the tasks of customs and the tax office. As a result, they will become responsible for collecting VAT from buyers on items imported from third countries and forwarding it to the tax administration.
New obligations of sales platforms
The changes also affect platforms that mediate online purchases between an EU consumer and a third country supplier or an EU supplier importing goods from a third country. The above-mentioned businesses must prepare to take on new obligations. Under the terms of the e-commerce package, online platforms can be treated as a supplier of goods purchased through them, provided that conditions such as:
- a distance sale of goods imported from a third country whose value is less than €150; or
- the supply of goods, irrespective of their value, by a supplier from a third country through an online platform within the EU;
If any of these conditions apply, the internet platform will be treated as a taxable person and will have to collect and account for the VAT due on its transactions with consumers. It will therefore be required to collect additional information that will allow the party to each completed transaction to be verified.
VAT package for e-commerce – simplifications or unfavourable changes
For e-commerce entrepreneurs, the new regulations should already be of interest. It is worth checking whether the changes could affect your business and preparing for them in good time. Taxpayers should check the individual impact of the planned changes on their current business model. In addition to simplifications, the VAT e-commerce package also contains numerous changes that must be taken into account when analysing the profitability of selling individual products. Properly planned processes in the company and the right tax policy are the basis for an optimal preparation of the company for the upcoming changes.
If you would like to receive detailed information in this regard, please contact the VAT department of our law firm.
Aleksandra Philips, LL.B., VAT Specialist