The VAT System on distance selling
Distance sales are the order of the day. More and more people are buying abroad without having any face-to-face contact with the seller and, due to that demand, entrepreneurs who decide to set up their online stores by expanding their borders are also growing.
If sales are made within the European Union, a threshold defined by each member country must be respected, although this changes if the customers are non-EU. Below we will clarify the most frequent doubts.
VAT on distance selling to EU customers
When we are in a B2C operation (“Business to Customer”), that is, between an entrepreneur and an individual, in particular an entrepreneur of the European Union who sells to a private individual who is in Spain (or any other country in the UE) and, whenever the transport of the goods is carried out by the selling company, we are faced with the well-known distance selling. Let’s see how these types of operations are taxed:
If the requirements mentioned above are met, the VAT will be applied from the member state in origin and not the Spanish (or the destination). But not always!
If certain thresholds are exceeded during the year, the VAT from the State of destination will be applied to distance sales. In addition, the following year will be applied the VAT of the country of destination to all sales made there. Each member state establishes its sales threshold from which its VAT must be passed. In Spain, for example, it is 35.000 Euros, but in Germany it is 100.000 Euros and in the United Kingdom 70.000 Euros.
Let’s see an example: If a German company sells for a value of 80.000 Euros to Spanish individuals in a year he can pass on German VAT on his first sales, but he will have to apply the Spanish VAT since the threshold of 35.000 Euros is surpassed during that year, what is to say, for a total of 45.000 Euros, while the following year, once the minimum threshold limit has been exceeded, it will be applied to each of the sales made to Spain.
In any case, companies may opt for the taxation at destination of all sales made to the same state member even though the threshold established by that country is not exceeded, communicating said option in the month of December prior to the year in which it is going to opt for it. This option must be applied, at least, for two calendar years.
On the other hand, it is important to note that the system of distance sales does not apply to certain transactions such as the transmission of new means of transport, objects of installation or assembly, used goods, art objects, antiques and collectibles, among others. Also note that products subject to special manufacturing taxes can be sold remotely but always taxed at the destination.
VAT on distance sales to non-EU customers
Online sales made to non-EU countries are considered exports. These types of operations are exempt from VAT, regardless of the country and the amount.
It is very important, for these cases, that the seller keep a copy of the Customs Document (DUA) that proves the departure of the merchandise each time he makes an export.
GM Tax is a specialized tax advice office, so we encourage you to contact us if you need a consultancy service on how to apply VAT in cases like that of distance sales. We will analyze your case and advise you in a personalized and professional way.