Why should webshops plan ahead?
Thanks to online sales, a product can reach a consumer in another EU member state easier than if we tried to sell it in a shop. Special VAT rules apply to the selling of goods and certain services to consumers in other member states through a webshop. If the aggregate annual volume of such webshop sales exceeds 10,000 Euros, from 1 July 2021, according to the main rule, the VAT of the consumer's member state will have to be charged. In order to pay the VAT of the target country, sellers would, by default, have to register in all member states to which they sell goods or services. This is simplified by OSS, the One Stop Shop),which is not an option in all cases, however.
What aspects should a webshop consider?
For the right tax planning of a webshop, many aspects have to be considered, in particular, the following:
- Where do you sell goods or services to: domestic, EU or third country?
- From where are the goods transported: domestic warehouse, another member state, third country?
- Who are your customers: private persons or businesses?
- What is the volume of sales to other member states?
- What is sold? Does special VAT rate apply to the goods domestically or abroad?
Where does the webshop sell to? From where are the goods delivered?
The place of tax payment may change depending on the places of dispatch and destination of the goods, i.e. the route travelled by the goods.
If goods are sold through a webshop domestically and delivered from a domestic warehouse to a domestic destination, Hungary VAT will have to be charged and the general rules will apply. There is no change in this regard from 1 July 2021.
The changes in VAT regulation after 1 July 2021 will primarily concern web shops that perform so-called intra-Community distance sales, i.e., for example, if goods are sold through a Hungarian webshop to a private person customer in another member state with the delivery from Hungary to the other member state performed by a logistics service provider commissioned by the seller. In this case, according to the main rule, the VAT rate of the target country will have to be charged unless the annual volume of sales is below 10,000 Euros.
If the goods are delivered to the buyer from a third country outside the EU, special rules will apply. In certain cases of webshop sales, the so-called Import One Stop Shop (IOSS) can be used or the tax payment obligation of electronic marketplaces may apply. VAT exemption may be applied to export sales but strict conditions apply.
Who are the web shop's customers: private persons or businesses?
It makes a difference to whom the webshop sells goods. If goods are sold on the webshop to private persons in other member states, by default, VAT will have to be charged. The question is whether the VAT of the country of dispatch or that of the target country will have to be paid.
If goods are sold to businesses in other member states, invoices can be issued without VAT but strict conditions apply. In particular, companies will have to be able to certify that the goods were transported to the other member state.
What is the volume of webshop sales to other member states?
From July 2021, if the aggregate value of webshop sales to non-taxable person in other member states exceeds 10,000 Euros at EU level, the VAT on the intra-Community distance sales will have to be paid according to the target country's VAT rate. However, in order to reduce the relating administrative burdens, the One Stop Shop (OSS) can be used. In this case, the company will not have to register in every member state, it is sufficient to register in OSS in one member state and to declare the VAT of all other member states there. Sellers may also choose to apply OSS below the value limit if it is more favourable for them.
For this reason, it is important to assess at the time of setting up a webshop the expected amount of sales to other member states and the demand from foreign customers.
What does the webshop sell? Does a special VAT rate apply to the products?
The product that is sold by the webshop is important for determining the VAT rate, in particular, if the goods are sold to private persons in other member states. If, for example, a preferential VAT rate applies to the products in the target country, this may influence the price. Within certain limitations, member states may specify goods that are subject to preferential VAT rates and may also regulate such preferential rates. Webshops will therefore have to prepare to apply the correct VAT rate of the target country from which even substantial differences may arise.
What are the potential risks?
Webshop sales are becoming increasingly transparent and it is also easy for the tax authority to obtain information on the conditions of sales. This means that the tax authority may easily establish a finding if the VAT is not paid in the relevant country or if the VAT rate applied is not correct. The tax authority may also impose a fine if the appropriate accounting documents are not issued on the sale.
Precisely for this reason, tax tasks have to be planned before the webshop is launched, considering which products and in what expected amount will be sold to other member states and what demand the webshop can expect from foreign consumers.