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Distant sales: the tax perspectives of e-commerce

In an everyday sense, e-commerce is an umbrella term: if any of ordering, payment, product delivery or the use of services takes place online, we are talking about e-commerce. From a tax perspective, however, it is important to what extent the transactions contain web-based solutions. Distant sales should be differentiated from other activities commonly referred to as e-commerce in respect of invoicing and the VAT treatment of the transactions.

The seller must issue an invoice including VAT in accordance with the regulations of the state of dispatch and continuously monitor the annual cumulative value of the sales to other member states. If the value limit applicable to the state of the destination [table - link] is exceeded, VAT invoices will have to be issued on the supplies according to the rules of that state (i.e. the state of destination) – this is the main rule of distant sales, at least, as far as VAT is concerned.

In order to issue foreign VAT invoices, the seller must apply for a tax number in the given member state. The establishment of a foreign company is not necessary as tax liabilities arising in the other member state may also be fulfilled through a financial representative or tax registration: international fiscal representation is a cost efficient and fast alternative to the founding of a company abroad. The selection of the fiscal representative, tax registration and the finalization of the new processes relating to the foreign tax returns usually take 4-6 weeks, companies should therefore prepare for the issuing of foreign VAT invoices in due time. Further advantages of such structures not involving company foundation are that they are transparent and easy to control.

Data required for invoicing

Both EU VAT regulations and the Hungarian VAT rules aligned to these allow sellers the issuing of foreign VAT invoices on their distant sales before reaching the relevant value limit – this option should be considered if the applicable foreign VAT rate is lower than the domestic one.

Taking into account the documentation obligation of the enterprises engaged in distant sales and the possibility of tax optimization presented by this option, the following practical and technical aspects should be considered:

  • the enterprises engaged in distant sales (also) should give their buyers the opportunity to identify themselves as taxpayers already at the time of placing their orders as the supplies to buyers with a valid tax number do not qualify as distant sales;
  • the delivery address, specifically, the country of destination is especially important in distant sales. This piece of information must be recorded by all means and the relating annual cumulative net sales must be managed at a system level;
  • the first copy of the invoice must be sent to the buyer together with the goods but a copy must also be sent to the fiscal representative preparing and filing foreign tax returns and the accounting unit of the seller. Electronic invoices may be used for the purposes of distant sales also. Special attention should be paid to the relevant regulations, in particular, the provisions of the regulation on the execution of the EU VAT Directive and Directive 2010/45/EU entering into force next year;
  • the distant sales value limits of the member states are defined making sure that they are exceeded by enterprises whose profit level is sufficient for self-sustenance achieved through continuous operation.  Accordingly, foreign tax registration is just a matter of time. Companies should already gather information on the fees and conditions of meeting foreign tax obligations at the time of commencement of their activity;
  • the invoices issued on distant sales must always include VAT. The only question is whether the VAT rate of the state of dispatch or the state of destination of the supplies to the buyer is applicable. Consequently, the foreign warehouses of the seller established within the scope of its operation based on tax registration may also be used as means of tax planning.

 Member states' value limit for distant sales

Member stateValue limitMember stateValue limit
Austria35.000 €Latvia24.000 LVL
Belgium35.000 €Lithuania125.000 LTL
Bulgaria70.000 BGNLuxembourg100.000 €
Cyprus35.000 €Malta35.000 €
Czech Republic1.140.000 CZKPoland160.000 PLN
Denmark280.000 DKKPortugal35.000 €
Estonia35.000 €Romania118.000 RON
Finland35.000 €Slovakia35.000 €
France100.000 €Slovenia35.000 €
Germany100.000 €Spain35.000 €
Greece35.000 €Sweden320.000 SEK
Ireland35.000 €The Netherlands100.000 €
Italy35.000 €UK70.000 GBP
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