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Taxation of e-commerce

People spend time daily on the internet for work, study, and entertainment, which calls for life e-commerce, offering a great possibility for businesses, since e-commerce is less costly than traditional methods.

Judit Jancsa-Pék, Senior advisor, Partner, LeitnerLeitner.

Buyers can select any goods without geographic borders, and pay online, which makes it flexible. Regulation and taxation of e-commerce, therefore, plays an important role for businesses nowadays.

Determining the governing VAT provisions i.e. taxation at the place of supplier or at the customer, VAT calculation on transport costs, using the proper invoicing routines, rightful application of rules for vouchers are all complex issues surrounding e-commerce, but it’s good news that soon it will be made radically simpler from the aspect of VAT.

Through its Digital Single Market Strategy, the European Commission aims at simplifying VAT for companies carrying out cross-border sales of goods or services (mainly online) to final consumers (B2C), in line with the principle of taxation at destination.

The first measures introduced in 2015 covered telecommunication, broadcasting and electronic services (TBC-services), the second package was adopted in December 2017 concerning the distance sales of goods and services supplied to final customers in the EU, and this VAT e-commerce package will be implemented gradually.

In 2019, simplification became available for microbusinesses and SMEs. First, an annual turnover threshold of EUR 10,000 is applied for intra-EU cross-border supplies of TBE-services, under which supplies remain subject to the VAT rules of the member state of the supplier. Secondly, for an annual turnover threshold of up to EUR 100,000, the vendor must only keep one piece of evidence (instead of two) to identify the member state of the customer. For invoicing, the rules of the EU country of identification of the supplier remains applicable.

In 2021, the extension of the Mini One-Stop-Shop (MOSS) scheme to One-Stop-Shop (OSS) will reduce administration dramatically: the non-Union scheme for supplies of TBE-services by taxable persons not established in the EU will be extended to all types of cross-border services to final consumers in the EU; while the Union scheme will be extended to all types of B2C services as well as to intra-EU distance sales of goods, parallel with the abolition of the current distance sales thresholds.  

This is in line with the commitment to apply the destination principle for VAT, and will result in online businesses being able to handle EU-wide VAT compliance from home, directly through their tax administration.

Special provisions concerning the obligations of electronic interfaces will enter into force on January 1, 2021 as well. Businesses operating such marketplaces or platforms will, in certain situations, have to collect and pay the VAT on behalf of their users for the supply of goods into the EU.

An import scheme will also be created covering distance sales of goods imported from third countries to customers in the EU up to a value of EUR 150. The seller will charge and collect the VAT at the point of sale to EU customers, declare and pay that VAT  in the member state chosen for the OSS registration. These goods will then benefit from a VAT exemption upon importation; while the current VAT exemption for goods in small consignment will be abolished. Alternatively, where the import OSS is not used, the customs declarant will have to collect import VAT from customers and pay it to the authorities via a monthly payment.

These simplification measures may facilitate more the online sales and going abroad for businesses. However, proper taxation and a sufficient administrative setup remains increasingly important. Good compliance also provides business opportunities by creating the way to analyze business and provide management information for better development decisions.

LeitnerLeitner is one of the most influential tax consulting, accounting and auditing companies in Central Europe, with tested cooperation all over the World. Through our experts we provide high quality and practical advice on taxation aspects of both traditional and e-commerce businesses and we open the door for businesses going abroad.