The importance of VAT in E-commerce
There is currently a very important rise in e-commerce of goods and services. The ease of implementation of business web pages, together with the ability to reach multiple markets without making a major financial investment, make this trade a very attractive way for start-up or even for small and medium enterprises.
Electronic commerce is a very important part of international trade because advertising the product or service is not conceived without a significant online component. Indeed, many international companies have created their own online market, distributing its products to consumers who are domiciled in other countries and made the purchase of them through the website of the company.
However, keep in mind that in many cases, the lack of European VAT rules can lead to high risk situations that the company may face when involved in the online market. Thus, while online sales manages to avoid, to some extent, obligations of direct taxes (CIT) in other EU countries, this is not the case with VAT as this tax is normally requested where the consumption takes place.
When talking about online sales (or by catalogue) of goods whose buyers are final consumers (not businessman or professional) who are domiciled in other Member States of the EU, there is a rule in the European VAT Directive 2006/112/EC locating such sales in the member State of the consumer from the time the supplier does exceed a turnover, which is set by each Member State in its own local VAT rules. For instance, a Spanish company who sell their products online to consumers domiciled in other Member States will be obliged to charge VAT in those countries of consumption, when exceeding a certain volume of sales.
In this sense, charging VAT in another Member State means to the taxpayer to be fully aware of the VAT rate in force in that State at any time or if your product applies a reduced VAT rate, to be registered with a VAT number in that State and, of course, to periodically pay the VAT to the tax authorities of that State. Failure to comply with these obligations is a very high risk for the entrepreneur in terms of potential tax penalties due by the lack of VAT payment, which is not avoided by charging Spanish VAT.
Moreover, with immediate effect from January 1, 2015, the new VAT rules on telecommunications services, broadcasting and, especially, electronically supplied services, represents a radical change in the treatment for VAT purposes in comparison with the treatment currently applied to these services. From this date on, any business or professional carrying out the provision of electronic services (such as online sales for software downloading) to a final customer established in another EU Member State shall be deemed to be placed in that Member State.
However, in order to simplify the complex task of complying with tax obligations in multiple Member States where a businessman or professional comes to provide services by electronic means, a new scheme is set up, so called as Mini-One Stop Shop, which will allow to meet these obligations from one Member State: the one in which the company’s headquarters is located.
In any case, there will be formalities and obligations of the scheme that must be properly fulfilled for the correct assessment of VAT and to avoid falling into unnecessary tax risks.
That said, a proper planning for VAT purposes is essential to be fully aware of all VAT obligations that may arise from the electronic trading of goods and services and, more important, to avoid any additional costs or tax risks arising from an incorrect planning or ignorance of the rule of the tax, so it is very advisable to have a VAT specialist who knows all the implications arising from electronic commerce, ensuring compliance with the standard and that can help meet obligations in any Member State where VAT is eligible.
In Diligens, as VAT specialists, we perfectly know all the implications of electronic commerce as to the proper application of the tax, offering a customized solution for each case.