E-commerce and VAT: Essential Information for B2C Sales within the EU

In today’s digital age, the e-commerce sector is continuously growing, with cross-border sales within the European Union (EU) offering significant potential for many businesses. To maintain competitiveness and comply with regulatory requirements, it is crucial for online stores to familiarize themselves with the rules and obligations related to Value Added Tax (VAT). One of the most significant ways to simplify administrative tasks and streamline tax obligations is through the use of the One-Stop Shop (OSS) scheme.

This blog post provides key VAT information for e-shops that sell their products remotely to private consumers within the EU (known as B2C sales).

Introduction to VAT Issues in Distance Selling

Let’s start by discussing the importance of determining the place of supply. In tax terminology, the “place of supply” identifies the country entitled to tax the supply of goods with VAT. This location directly affects the VAT rate the seller must charge, as the rate of the country where the supply occurs applies. A key factor in determining the place of supply is the total value of goods sold to private consumers in the EU; if this value exceeds 10,000 euros in a calendar year, the place of supply is considered to be the country where the goods are located at the time of delivery to the final consumer.

For clarification, the 10,000 euro threshold excludes VAT and includes the value of selected services such as telecommunications, broadcasting and television services, and electronic services. Moreover, for goods supplied to final consumers from Slovak territory, the value of the goods and the mentioned selected services supplied to private consumers who reside here does not count towards the 10,000 euro threshold.

For e-shops that do not exceed this threshold, the place of supply is considered to be the country from which the goods are dispatched. This threshold value simplifies administration for smaller businesses, allowing them to focus more on the growth and development of their business.

Benefits of Using OSS

The OSS scheme is designed to simplify life for e-shops by allowing them to submit a single VAT return for all transactions conducted within the EU. This means that an e-shop can remit VAT due in various member states through a single registration in the country where it is based. This arrangement significantly reduces bureaucratic burdens and facilitates doing business within the EU’s internal market.

Entrepreneurs may choose to use OSS or register for VAT in each member state where they make sales. Opting for OSS brings not only administrative relief but also financial advantages, as it eliminates the need to register for VAT separately in each state.

Registration Process and Filing Returns

Registering for OSS is a relatively straightforward process, but it requires meeting certain conditions and registering in the state where the entrepreneur has their headquarters or operational site. After successful registration, an e-shop can start taking advantage of the benefits OSS offers, including easier tax return filing and VAT payments.

In general, if a supplier decides to register for the OSS scheme, they must register for the special OSS arrangement in the country where they have their headquarters, place of business, or residence. For foreign suppliers without a base in an EU member country, there is an option to choose the country where they will register and fulfill their VAT obligations.

For example, Slovak e-shops can choose Slovakia as their member state of identification under the following conditions:

  • If the dispatch or transport of goods begins in Slovakia, provided that the e-shop does not have a headquarters or operational site within the European Union,
  • If the e-shop has a headquarters in Slovakia,
  • If the e-shop has an operational site in Slovakia, provided it does not have a headquarters within the European Union,
  • If the e-shop has an operational site in Slovakia, provided it does not have a headquarters within the European Union and has more than one operational site within the European Union,

In case of non-compliance with the conditions for applying OSS, exclusion from the special OSS arrangement for a period of 2 years is possible. Subsequently, there is an obligation to register for VAT in all countries where the e-shop has customers.

How to File a VAT Return under OSS

VAT returns under the OSS scheme are filed quarterly. Entrepreneurs are required to submit the return and pay the corresponding VAT by the end of the month following the end of each quarter. This means that if a quarter ends in March, the VAT return and payment must be completed by the end of April. This process is simplified and allows entrepreneurs to better plan their tax obligations.

However, it is necessary to file a return even if the e-shop did not supply any goods subject to the OSS arrangement in a particular calendar quarter.

The amounts are reported in the tax return in euros. When converting foreign currency to euros, the reference exchange rate published by the European Central Bank or the National Bank of Slovakia on the last day of the relevant tax period (calendar quarter) is used. If no reference exchange rate was determined on that day, the rate determined for the following day is used.

OSS and E-shops

Utilizing OSS comes with several advantages. Beyond simplifying tax obligations and saving time on administration, OSS allows e-shops to focus more on developing their business activities without needing to deal with complicated tax rules in each EU member state. Moreover, thanks to centralized registration and tax return filing, entrepreneurs can better monitor and manage their tax liabilities at a European level.

Before deciding to register for OSS, it’s important to realize that despite submitting a single tax return in OSS for supplies within the EU, the e-shop will still need to know the VAT rates applicable in each member state where it has customers. Additionally, supplies of goods to customers in Slovakia will be taxed through the standard Slovak VAT return.

For the vast majority of e-shops, the OSS scheme will be the ideal choice. We recommend consulting with a tax advisor who can help you select the best option for your e-shop based on your specific needs and circumstances.

Tax Advisory and Logistics

On the path to success in the e-commerce sector, having reliable partners in various areas of your business is essential. While OSS and proper VAT management are key to the financial and tax aspects of your e-shop, effective logistics and distribution of goods are equally important for ensuring customer satisfaction and the smooth operation of your business.

Partnering with Fulfillment by FHB Group means that your e-shop’s logistics are in the hands of professionals who take care of fast and efficient delivery of your products throughout Europe and the rest of the world. On the other hand, relying on the expertise of VGD Slovakia, s.r.o., specialists in providing comprehensive tax, legal, and audit services, can significantly ease your business operations.

By combining the expertise and experience of Fulfillment by FHB Group in logistics and VGD Slovakia, s.r.o. in tax and legal advisory, we have created a series of articles. These will enable you to navigate effectively in the complex world of e-commerce, while focusing on what you do best: building and growing your business.

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