E-commerce is the fastest growing retail market globally which is expected to be worth €174 billion in 2016 in the UK alone. VAT is one of three main challenges businesses face when expanding cross-border according to E-commerce Europe.
Each country has its own set of rules and regulations that you must follow. Simply being ignorant to these is not a defence and you will be fined. We have listed below some top tips you should follow to make sure you stay VAT compliant.
1. Check where your customer is based
If you are based in the European Union (EU) then you fall into the Distance Selling regime. If you sell to a private consumer in another Member State, you can charge the correct VAT rate in your resident country providing you are under the VAT registration threshold. If you have registered for VAT in the country you are selling to, you would need to charge the VAT rate applicable in the consumer’s resident country.
You also need to be aware of which of the country’s VAT rates to apply. Different goods and services will have different VAT rates applied. In the UK, the standard VAT rate is 20%, however there is a reduced VAT rate of 5% and some items, such as children’s clothing, are VAT exempt.
Only a few European Member States have a 0% rate, however all countries except from Denmark have more than one rate so it’s worth researching this before you start selling.
2. Monitor your sales and VAT registration thresholds
Earlier we mentioned VAT registration thresholds. These vary from country to country between €35,000 and €100,000. In the UK the threshold is £70,000 for EU businesses whereas VAT registration is due immediately for non-EU businesses.
You will need to keep a very close eye on your sales as you will need to register if your VAT taxable turnover exceeds the threshold in a 12 month period. Once this condition is met, you will need to register within 30 days or you may be fined. If you know you will exceed the threshold in a 30 day period, you must register for VAT immediately.
3. Reporting Cross-Border VAT
Once you are registered in your resident country and any other country for VAT purposes, you will be required to submit VAT declarations. Some reports need to be completed monthly, whereas others are submitted quarterly, bi-annually or annually. This may vary depending on your sales turnover.
You may also need to submit additional reporting like Intrastat and EC Sales Listings as well as other declarations specific to some countries only. It’s best to discuss your individual business circumstances with one of our VAT experts in order to make sure you file the necessary reporting in the countries you are VAT registered.
Reporting requirements and VAT registration thresholds change from time to time, so make sure you stay up to date with this in order to stay compliant.
4. Online marketplaces
If you use an online marketplace to sell your goods or services, such as eBay, Amazon or Etsy, you should be aware that new legislation has come into force in the UK that states that online marketplaces can be held jointly or severally liable if you do not pay your VAT on time.
This update comes as a result of law changes that aim to tackle VAT evasion which has had a widespread effect across Europe. The VAT Gap – the difference between the expected VAT revenue and the amount actually collected – amounted to almost €160 billion in 2014.
5. What about non-EU countries?
The U.S. e-commerce market is said to be worth around $349 billion whereas the Chinese e-commerce economy is worth around $560 billion. If you sell into either of these countries, or any other non-EU country, you must follow the relevant legislation.
From the 1st of January 2018 the UAE will adopt a VAT regime which is likely to be very similar to the EU one. Businesses have been warned to start preparing now in order to make sure they meet all the new legislation.
Qatar, Bahrain, Oman and Saudi Arabia are expected to follow suit and introduce a VAT regime sometime between January 2018 and January 2019.
It’s sometimes difficult and confusing when you’re dealing with cross-border VAT. However, there are companies and organisations out there to help you stay compliant. While VAT might be one of the scarier parts of going cross-border, it doesn’t have to be- and the reward is certainly worth it for those who want to take the plunge.