Sarah Barron – VAT Specialist
Ordinarily, when goods are sold to VAT registered business customers in other EU countries, these goods are zero rated for VAT in the supplier’s country, as long as the goods are dispatched from the country of supply and the customer accounts for the VAT due on the goods as acquisition tax, calculated at the relevant rate in the country of receipt.
What is distance selling?
Distance selling is the term used to describe when goods are sold from a supplier in one EU member state to a customer in another member state who is not registered for VAT. Non-VAT registered customers are commonly known as ‘non-taxable persons’ and might include private individuals, small businesses, or charities and public bodies. Sales affected will include mail order, tele-sales or goods ordered from online websites.
Sales to these customers will be subject to VAT at the rate applicable in the supplier’s country, until the distance selling threshold is breached in the country of destination.
Distance selling thresholds
Each EU member state sets an annual distance selling threshold, which can be either €35,000 or €100,000 per calendar year. For countries that don’t use the Euro, the equivalent value in the local currency applies e.g. the UK distance selling threshold is £70,000, which broadly equated to €100,000 when the threshold was set.
VAT registered businesses are required to keep a record of all sales made over a calendar year to non-taxable persons in each EU member state, to ensure that they remain aware of when they might breach the distance selling threshold. Once the threshold is breached in an EU state, the supplier is required to register and account for VAT to the local tax authorities on all future sales of goods in that country. In addition, businesses can also voluntarily register and account for VAT in another EU member state if they wish to, prior to exceeding the distance selling threshold.
An exception to the threshold rule, however, is where a supplier sells goods which are subject to Excise duty, such as beer and wine; these goods are not subject to the threshold and suppliers of such goods are required to register for VAT as soon as they make any supplies to other EU states.
Applying the distance selling rules
The distance selling rules described apply where goods sold to customers in other member states are dispatched from the supplier’s country. However, in some instances suppliers may also wish to hold stocks of their goods in other member states, for speed and ease of shipment. As soon as a stock of goods is held by a supplier in a member state other than its own, this triggers a liability for the supplier to register for VAT in the member state where goods are held.
Applying to ecommerce
Many businesses that sell goods via Amazon have supplies of their stock held in fulfilment warehouses in other member states at Amazon’s request, to make it easier to ship goods to the end customers when orders are placed. Amazon are obliged to inform sellers that the placement of their stock in other EU warehouses triggers a requirement to register for VAT, but many small business find the process of obtaining EU VAT registrations daunting and difficult.
The current VAT rules for B2B and B2C supplies of goods to EU customers will change when the UK leaves the EU. The precise details will depend on what, if any, deal is reached between the UK and the EU.
If the UK leaves without a deal, all such supplies will become exports from the UK, which will be subject to zero rate VAT, provided certain conditions are satisfied. Import VAT and possibly Customs duties will be due in the destination country. If the UK supplier acts as the importer of record, it will need to register for VAT in the country of importation, reclaim the import VAT and account for local VAT on the supply of the goods to the end customer.
Although the outcome of Brexit is still uncertain, businesses should prepare now for the possibility of a no deal Brexit on 31 October 2019. For example, this may include speaking to your shipping providers to discuss export and import procedures, to ensure business continuity.
Menzies is part of HLB International network and can assist businesses to acquire EU VAT registrations in respect of Amazon sales via our amavat service, which is specifically aimed at assisting Amazon traders to be VAT compliant across the EU.