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VAT and VAT-OSS in EU Guide
VAT, VAT registration, and VAT settlements are quite a problem for online sellers operating within the European Union. Differences between the rate depending on the country, the VAT sales limit for mail-order sales or issues of storage and place of shipping – all these can seriously discourage online retailers from doing business on a larger scale.
VAT, VAT registration, and VAT settlements are quite a problem for online sellers operating within the European Union. Differences between the amount of the rate depending on the country, differences resulting from the type of product, VAT registration limit, issuing VAT invoices, VAT sales limit by mail order or the issue of the place of shipping and what goes with it… All this can seriously discourage sellers from doing business on a larger scale. So let’s try to systematize this knowledge a bit, explaining a few key issues that will help you understand VAT better and maybe it will calm you down a bit. Sellers of their goods in the e-commerce industry face a lot of obstacles on their way. Every year there are more online stores registering on the market, which means a constant increase in competition. On top of that there is the expansion of large retail chains on the Internet. The sellers have to fight for their goods to be the one that the buyers want most. On top of that, there is the tip of the iceberg, which in this case is VAT…
VAT (Value Added Tax) – what is it?
VAT, or Value Added Tax, is a consumption tax. It is levied on almost all goods, services purchased and services sold for consumption and use within the European Union. Its value is added to the net value of all commercial transactions. VAT is charged regardless of whether the transaction takes place between an individual or business customers, both when importing or transferring goods within the European Union.
EU VAT – History
A short history lesson – France introduced the first VAT in 1954. Its introduction in the European Union was a response to the need for tax unification of EU member states. It was established on the basis of directives from 1967. Polish VAT was introduced in 1993. However, VAT does not function exclusively within the EU, in other countries a similar value-added tax may operate under a different name. Each Member State has different VAT rates. They are set at the national level, hence the differences between the countries. In addition, VAT rates may vary depending on the goods sold and purchased. For most goods and services, the standard rate applies, ranging from 19-23% (currently reduced to 16% in Germany due to Covid-19 – by the end of 2020). However, there are goods and services with a lower or zero VAT rate – the so-called preferential VAT rate. When is VAT due? Unfortunately, most often the whole production process – from start to finish – is included in it, i.e. purchase of components, transport, assembly, supply, insurance and delivery to the final customer.
Calculating the appropriate VAT rate, WDT/WNT – example
If your company is registered in the European Union, your VAT obligations depend on the market where you sell your goods and what the goods are. Assuming that you are an EU VAT payer and you sell products to a company that is an active EU VAT payer and has its registered office in a different EU country than the one where you are registered, you do not charge VAT on these sales – this is the so-called intra-community supply or purchase of goods (WDT/WNT). But if you sell the same product to a final consumer in the European Union, you charge VAT according to the rate of the country of shipment of the goods, and after exceeding the limits of the shipment of the goods the VAT rate of the country of destination. Pretty complicated, right? So the question arises – when do you have to register as a VAT payer in the country of delivery?
VAT registration – what does it mean?
What is VAT registration? This term is often associated with establishing a company in a country where you want to sell your goods, or creating a branch registered in that country. Nothing could be further from the truth! When your company plans to sell on the new market in the European Union, you must register it there for VAT. However, this registration is only for the purpose of your company’s compliance with the VAT rules of this country. A company that registers for VAT in different countries of the European Union does so in order to refund the tax paid there and to charge VAT on sales to customers who buy from that country. Through this registration, the company gains NETP (Non-Established Taxable Person) status. Consequently, unless the company is permanent, it does not pay taxes on its income in the country where it is only registered for VAT.
When should I register my company for VAT?
There are various cases in which you have to register your company for VAT in the European Union. First of all, you have to do it if you plan to make transactions with foreign contractors in the European Union. So, if you are planning to sell outside Poland, you should definitely register for VAT in the country to which you will be sending your goods. Additionally, you have to register if you are planning intra-community transactions. Here, the matter is a bit more complicated, because you have to do it also when you take advantage of VAT exemptions resulting from not exceeding the annual turnover equal to PLN 200,000 (according to 113, paragraph 1 of the VAT Act: Tax exemption for taxpayers whose taxed sales did not exceed in total the amount of PLN 200,000 in the previous tax year. The value of sales does not include the amount of tax). This amount sets the so-called VAT registration limit and after exceeding it within the last 12 months (not the calendar year, and the last 12 months!), you are obliged to register it. Each Member State of the European Union from the bottom upsets the amount of this limit. It is recommended that you register at least one month before you expect to exceed this limit. In addition, it is worthwhile to monitor in advance the value of sales of goods shipped to individual European Union countries, as this has a significant impact on determining the correct way of VAT taxation of foreign e-commerce sales. Nevertheless, thanks to the option of choosing VAT registration in other countries, there is no need to monitor the distance selling threshold. If you anticipate a sudden surge in sales that will lead to the limit being exceeded and then falling, it is worth trying to apply for a temporary exemption from VAT registration. If the sale drops and you are already a registered vat, you can de-register your company from the tax. You also need to register if the value of the intra-community acquisition of goods exceeded the annual sum of PLN 50,000 and, of course, if you want to provide services for which the place of VAT settlement from the transaction is the country of the other party to the transaction – i.e. when the VAT is settled in the customer’s country.
And how to register for EU VAT?
In addition to the above-mentioned sales quota, Amazon seriously enforces VAT registration in the country where its warehouse is located where you store your goods. Therefore, the obligation to register for VAT in another European Union country arises when you sell in the Amazon FBA model, i.e. when the goods are stored in a foreign warehouse. The location of your goods has an impact on VAT obligations. The registration should, of course, be made before the sale of goods from a given foreign warehouse starts, regardless of the current sales value of the products.
How to register for an EU VAT number?
EU VAT registration is free of charge and should be finalised before the first foreign transaction on the European market begins. Where can you register? You can register at the tax offices. If you run a small one-person business activity, it will be the tax office competent for your place of residence, but if you run a business as a legal person or an organizational unit without legal personality, you will register VAT at the tax office competent for the seat of the entity, and if you do not have a seat in Poland, but you run your business activity here on a permanent basis, you should report to the office competent for the permanent place of business. If you do not have a place of residence or you do not run your business activity in Poland on a permanent basis, you will register your VAT with the Second Tax Office Warszawa-Śródmieście. Tax offices for the largest entities will serve companies with multi-million dollar revenues, with capital from outside Poland and branches of foreign companies that operate in Poland. Your first step will be to apply for registration as an EU VAT taxpayer. To this end, you must fill in the appropriate form and then submit the application in person, send it by traditional mail, or submit it electronically as an attachment to the CEIDG-1 application (in case of business activity). You can also use the Tax Portal. Remember to mark your willingness to receive appropriate confirmations of the registration stage – this will make you visible in the VIES database (i.e. in the VAT Information Exchange System) after you submit it. If you want to authorize someone to be your attorney, you will pay small stamp duty for a special power of attorney (PPS-1). It is PLN 17, but if your attorney is a husband, wife, child, parent, grandparent, sibling or grandchild… You will not pay anything. For a general power of attorney (PPO-1), you will not pay a penny. This power of attorney gives the authorized individual full legal capacity – and does not have to be an attorney, counsel or legal counsel. In other words, detailed power of attorney authorizes a specific action, while a general power of attorney authorizes an individual to act in all tax matters (and not only!). The registration deadline is from two weeks to two months. This is due to a number of regulations that eliminate cases of fraud and abuse during registration. After the registration is completed, the relevant office will give you a new European VAT ID number. Since then, in international transactions, you must use the NIP with a prefix, e.g. “PL” for Poland. Sales on the European market and the related VAT rules can be extremely complicated and one article is not able to exhaust this topic completely. With so many variables, differences in VAT rates, number of pages in transactions, etc., it is very easy to get lost in EU VAT settlements. On the other hand, Amazon is tempted to conquer many markets at once, if only by means of the FBA model. taxology facilitates the transition of the registration process and subsequent EU VAT settlements. We keep our hand on the pulse and we are up to date with all the changes taking place in the European markets. So if you are still hesitating and do not know if it is worthwhile to register your company for VAT EU, please contact us. We will certainly dispel your doubts, and in the future, we will help you to avoid problems related to sales on international markets. Make an appointment for a consultation today and let us take care of your taxes while you focus on developing your business.