Luzern’s guide to VAT on selling goods online in EU

Luzern’s guide to Amazon

Intra-Community supplier goods

Following the introduction of the Single Market on 1 January 1993, the concept of import and export was abolished for EU trade and replaced by a system of intra-Community supplies and intro-Community acquisitions of goods. The VAT treatment of sales of goods to customers in other EU countries depends on the VAT status of the customers, whether the customer is VAT registered in another EU Member State (B2B) or whether they are not VAT registered (B2C).

VAT on B2B transactions in EU

Goods dispatched to a person registered for VAT in other EU member states are referred to as intro-community dispatches or intra-community supplies. In accordance with paragraph 1 of Schedule 2 VATCA 2010, the transaction can be zero-rated in Ireland if the following conditions are met:

1. The customer is VAT registered in another EU Member State;
2. The customer’s VAT registration number is obtained by the supplier in advance or at the time of the supply and is retained in the supplier’s record;
3. The VAT registration number of the supplier and the customer are stated on the invoice; and
4. The goods are dispatched to another EU Member State, and the supplier retains evidence that the goods are removed from Ireland and dispatched to the other EU Member State within three months of the supply.

Where there is an intra-community dispatch of goods made out of one EU Member State, there will be a corresponding intra-community acquisition on the arrival of the goods in another EU Member State. Therefore two transactions take place for VAT purposes. First, the supplier of the goods is accountable for VAT on the dispatch supply at the zero rates, secondly, the purchaser is accountable for VAT at local rates on their acquisition of the goods purchase.

If an Irish VAT registered trader makes an intra-community acquisition of goods in Ireland from another EU country, they must self-account for VAT at the appropriate rate in their Irish VAT return and is entitled to take a simultaneous deduction of this VAT in the same VAT return provided that they are acquiring the goods for the purposes of trader’s fully VATable activities.

You can verify the validity of a VAT number issued by any Member State through European Commission website: http://ec.europa.eu/taxation_customs/vies/

VAT on B2B Triangulation relief

Triangulating is the term used to describe a chain of intra-EU suppliers of goods involving 3 parties. But instead of the goods physically passing from one to the other, they are delivered directly from the first to the last party in the chain.

Triangulation relief was created within the EU VAT law, which is implemented across all member states. It is a simplification measure designed to reduce a trader’s obligation to register for VAT in the multiple EU States in relation to the supply of goods. The relief only applies where there are three parties in a chain of transactions, each located and VAT registered in three separate EU States.

For example, a UK company received an order from a customer in Ireland. To fulfil the order the UK supplier in turn orders from their own supplier in France. The goods are delivered from France to Ireland. As Ireland is the place where the goods end up, triangulation relief allows UK companies to avoid registering for Irish VAT and French VAT. The Irish end customer is obliged to self-account for VAT. This means that the Irish customer is entitled to recover the reverse charge VAT in his Irish VAT return to the extent that he is engaged in VATable activities.

VAT on B2C Transaction in EU (Distance Sales)

When the goods are dispatched or transported to a private customer who is not VAT registered in another EU country. The VAT distance sale rule will apply. It includes mail orders sale, phone sales and online sales. It does not include the sale of new means of transport or excisable goods. There are no distance sales for electronic or digital services to consumers under the new 2015 MOSS VAT rule.

The place of supply of distance sales of goods is the place where the transportation of the goods ended (i.e. usually the EU country where the private consumer is located). It is subject to the distance sale registration thresholds in each Member State.

An EU trader making distance sale of goods to consumers in another EU country would need to confirm whether he has VAT obligation in that foreign country. However, it is important to note that this rule does not apply where the value of the sale is below the relevant threshold for the EU country in question in which case the trader should charge VAT in the EU country where the transport commenced.

If goods are sold from Ireland to a private customer in another EU state, then Irish VAT should be charged, however, if the value of sale exceeds the distance selling threshold in the other EU country, then the selling will be obliged to register in that country and charge and account for local VAT in that other country. Each EU country has its own distance sales threshold but they are either €35,000 or €100,000 per calendar year or the equivalent in the local currency.

You can find a full list of threshold that applies to EU countries on the European Union’s Website. To find out how to register for VAT in any EU country and to learn more about its VAT rule, you should visit that country’s national tax website.

For distance sale of goods from another EU Member State to an Irish private customer, the registration threshold in Ireland is €35,000 per calendar. This means that foreign distance seller is required to VAT register and account for Irish VAT if their distance sale of goods into Ireland exceeds the €35,000 Irish distance sale threshold. The trader may opt to the VAT register and charge VAT in Ireland even though the threshold has not been exceeded.

Distance Selling Tips

If you have a significant sale to customers in the EU, you should make sure you have a system in place to record the total value of sales in each country. You should also seek professional advice from an EU VAT expert and you should make sure you take prompt actions if you exceed a country’s threshold.

Luzern has been selling goods online to both VAT registered and non-VAT registered customers in the EU for over 15 years. We are VAT registered in 12 EU countries. Luzern platform “Channel Optimizer” can provide clients with customized financial reporting and analysis for EU VAT.

If you have any questions on this, or any online selling issues, please contact us here.