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VAT in e-commerce and foreign sales from 2021

The changes to come into force as early as 2021 are the result of the mandatory implementation of EU rules on e-commerce. This is so-called the VAT e-commerce package, which each Member State has undertaken to implement in order to combat VAT fraud, seal the tax system, equate competitive differences in e-commerce and also simplify tax settlements.

What will change?

It is likely that the changes are linked to the accelerated development of the e-commerce market, which in recent times has sometimes been a rescue for some entrepreneurs (given the current COVID-19 period), and has not yet been adequately regulated. The European Union has therefore decided to implement uniform amendments for all Member States from 1 January 2021. The following will be presented the most important changes, which will include in particular online sellers and seller of distance services.

New definition of intra-community distance selling of goods

Particular attention should be paid to the new concept of ‘intra-community distance selling of goods’ which, in accordance with Article 14 (4) of Directive 2006/112/EC, means the supply of goods dispatched or transported by or on behalf of a supplier, including where the supplier is indirectly involved in their transport or dispatch, from a Member State other than the Country of completion of the dispatch or transport of the goods to the purchaser. To apply this definition, the following are foreseen:

  • the supply of goods must be made to a taxpayer or non-taxable legal person for whom intra-community acquisitions of goods will not be subject to VAT or to any other non-taxpayer;
  • the goods delivered may not be new means of transport or goods delivered after assembly or installation, with or without a trail start-up.

Mail order sales – changes

The new definition should also mention the modification to be made from 2021 in the area of mail order sales. These amendments concern in particular goods imported form third countries. It is worth mentioning that until now, such sales have been treated as ordinary imports of goods, now according to the new regulations, it will be treated as mail order sales, so the rules in this regard will change. To this end, they have set up an OSS system which will require additional incl. as regards the need for notification in incl. union country, to be determined on the basis of the Directive. To this end, the so-called ‘Identification State’ concept is used, which will be responsible for issuing identification numbers for individual taxpayers. Entrepreneurs will then be required to file tax declaration on mail order sales.

MOSS system modifications

First of all, it is necessary to clarify what MOSS is. It is system that aims to facilitate the tax settlement of VAT due in EU countries. It is worth mentioning that registration in MOSS is possible already from 2014. In addition, registration in the system is optional and is used only for the purpose of simplification in VAT settlements for sales.

The amendments, on the other hand, provide for the extension of the scheme to include additional distance sales. However, this only applies to certain services, such as:

  • telecommunications services,
  • broadcasting services,
  • services provided electronically.

VAT settlements

In addition, VAT settlements is also envisaged in connection with the implementation of cross-border online sales of goods or services to EU consumers, which is intended to relieve the entrepreneur of excessive tax obligations. To this end, the system provides for the simplification of the tax system in cross-border online trade by introducing a single mechanism – a point of contract for online sales between Union transactions and transactions with third countries for consumers. For this purpose, entrepreneurs will only be able to settle the tax by submitting a VAT return in one country.

As you can see, many changes are being prepared and entrepreneurs will have to cope with numerous tax modifications. However, given that these changes are primarily intended to balance the competition field of EU business in e-commerce and third countries, adapting to change seems to be a favorable option.