VAT and Custom Duties on Crossborder Ecommerce Sales by Alan Rhode from Taxmen.eu

1. VAT and Customs Duties on
Crossborder E-commerce Sales
Alan M. Rhode
ECOMMERCE +SHOP TECH
Helsinki, 14 March 2018

2. Ecommerce export
VAT vs.
Sales tax
E-SHOP
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Customs duties
Packaging
tariffs

3. VAT vs. Sales Tax
• Most world countries apply consumption taxes on e-
commerce sales (B2C).
• Europe: VAT, applied in each country according to a
EU-harmonized framework.
• U.S., Canada e other non-EU countries: Sales Taxes.
• In general, Sales Taxes only apply to B2C sales and
at lower rates than VAT.
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4. VAT
• The VAT scenario for e-commerce sales (B2C):
1. Shipment + delivery to Finland= Finnish VAT;
2. Shipment from Finland to another EU state=
distance selling (see slide nr. 5);
3. Shipment from Finland to non-EU countries= VAT
zero rated in Finland, as long as the merchant is
able to prove that the goods have left the EU.
Customs duties or consumption tax are often due
in the non-EU destination country.
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5. EU Distance selling
• “EU Distance selling” means: sales of goods from the
EU to consumers in another EU country, but only when
the shipment of the goods is made under the name
and/or on behalf of the seller.
• EU distance selling does not include those cases when:
a. Shipment is made on behalf of the consumer; or
b. The customer collects the items personally or
arranges the collection; or
c. It is a business-to-business transaction; or
d. The products are delivered outside the EU.
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6. EU distance selling (2)
• Distance sales of goods from Finland to another EU
country are subject to Finnish VAT as long as the
merchant does not exceed the yearly revenue threshold
set by the EU state of destination.
• The revenue thresholds vary among EU states (€35k
/100k).
• Once the threshold is met, the Finnish merchant must
apply/report/pay VAT on the sales in the EU country of
destination (EU 2) for the remaining part of that calendar
year (Y1) and the entire following year (Y2).
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7. EU distance selling (3)
• If during Y2, the Finnish merchant fails to meet the
yearly revenue threshold in EU 2, from Y3 the merchant
will start applying Finnish VAT again.
• The merchant is allowed to opt for the application of
another EU state’s VAT on distance sales to the latter
EU state.
• The option enables the Finnish merchant not to
constantly monitor revenues made with sales to the
other EU country and to avoid switching back and forth
from Finnish VAT to the other EU country’s VAT.
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8. EU distance selling (4)
• Example:
Germany: distance selling VAT threshold: Eur 100,000
per year
✓ In 2018, a Finnish merchant never reaches the Eur
100,000 threshold with sales to German consumers:
the merchant will continue applying Finnish VAT to all
sales to German consumers (24%);
✓ On the contrary, if during 2018 our Finnish merchant
reaches the Eur 100,000 threshold, the merchant will
have to apply German VAT to all B2C sales for the
remainder of 2018 and all 2019 (19%);
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9. EU distance selling (5)
✓ If in 2019 (or a subsequent year), the Finnish merchant
does not reach the German threshold again (Eur 100k),
from 2020 the merchant will start applying Finnish VAT
on all German B2C sales;
✓ Alternatively, the Finnish merchant will be able to opt for
the application of German VAT (even if not mandated by
law).
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10. EU distance selling today: issues
a) The merchant is required to constantly monitor EU
crossborder sales;
b) Potential VAT identification in multiple EU states;
c) In the latter case, the merchants must abide to multiple
invoicing and book-keeping requirements;
d) Potential audits by other EU tax authorities.
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11. The 2021 VAT reform
• In 2017, the EU approved a reform overturning the VAT
treatment of distance sales.
• From 1 January 2021, VAT will always apply in the EU
country where the consumer receives the goods.
• The current thresholds will be removed (€35/100k).
• Facilitation: merchants will use the Mini One Stop Shop
(MOSS) to report/pay VAT in other EU states.
• The MOSS is an electronic interface used for to report
and pay VAT on crossborder supplies of B2C digital
services since 2015.
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12. The 2021 VAT reform (2)
• Invoicing and book keeping rules of the home country of
the merchant will also apply to consumer sales to other
EU countries.
• De minimis threshold: sales by merchants with an yearly
EU turnover ≤ €10,000 will still be subject to VAT in the
country of dispatch.
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13. Customs duties
• No outbound duties are due in Europe on exports.
• Shipments may be subject to inbound import duties in
the non-EU country of destination.
• Customs duties are usually applied on the commercial
value indicated on the accompanying invoice.
• Cost Insurance Freight (CIF) vs. Free On Board (FOB).
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14. Customs duties: DDP vs. DDU
• EU merchants many ship parcels to non-EU consumers
under a Delivery Duty Paid (DDP) or, alternatively,
Delivery Duty Unpaid (DDU) solution.
• DDU: the customer will get contacted by the local
customs and mayhave to settle all import duties in order
for customs to release the shipment.
• DDP: the merchant decides to be responsible for paying
the duties. Most likely, the seller includes these duties at
checkout and collects payment from the customer in
advance. The courier will act as the customs broker.
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15. Customs duties: free trade agreements
• If the EU and the non-EU destination country have
entered into a Free Trade Agreement, no inbound
customs duties will apply if the products originate from
Europe.
• The rules of origin included in the FTA will determine
whether a product originates from Europe.
• Inbound VAT or Sales Taxes will still apply (=domestic
transactions).
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16. Packagin tariffs/Green dot
• Most EU countries impose to non-established merchant
the payment of packaging tariffs on the packaging
used to deliver parcels to local consumers (Green dot).
• In many cases, registration with the competent national
recovery organization and payment of packagin tariffs is
required without any minimum packaging threshold
requirement (Austria, France, Germany, Spain).
• Merchants are usually allowed refund of the packaging
tariffs paid in their own country on packaging used to
export products.
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