EU VAT for online retailers

My client is VAT registered and sells toys (+ UK VAT) to consumers across Europe via a 3rd party online platform with circa £20,000 sales into Germany. The platform passes order details and payments (net of the platform’s fees) to my client who ships the toys from its UK stock and issues an invoice to the customer. Why has the platform told my client it needs a German Tax Certificate?

When selling goods (from UK stock) to non-VAT registered customers in other EU countries (distance selling), the seller must account for UK VAT on those sales as if they are being sold to a UK customer until either of the following happens: a) the supplier opts to voluntarily register in the destination country (see Notice 725 para 6.10); or, b) it has exceeded the destination country's distance selling threshold. When either a) or b) happens, sales into that particular EU country will be subject to that country’s VAT and, if not already VAT registered there, seller will have to do so. Each EU country has a distance selling threshold based on either €35,000 or €100,000 sales per calendar year. The current threshold for Germany is €100,000.

From 1 January 2019, the German authorities brought in a new law that holds 3rd party platforms liable to any unpaid VAT by their sellers. As a result, some online platforms are requiring their sellers to provide a copy of their German Tax certificate if sellers wish to continue to sell product into Germany using their platform. In order to get a tax certificate, the seller would need to VAT register in Germany. In effect therefore, these platforms are requiring distance sellers that are below the distance selling threshold (as in your client’s case) to take up the option to voluntarily register & charge German VAT on these sales earlier than the sellers need to. Although the standard VAT rate is currently 19% in Germany, this saving might be lost in the additional administrative burden of being German VAT registered. Ultimately this is a commercial consideration for your client and it may be worthwhile exploring this further with the platform concerned to see whether they might relax their requirements for traders that are significantly below Germany’s distance selling threshold, or consider using platforms that have less onerous terms.

BREXIT implications: If the UK leaves the EU on 29 March 2019 with a deal, it is likely that the distance selling implications will carry on in the same way for at least the transition period. If however the UK leaves with no deal, then from 30 March onwards, all distance sales into the EU will become exports. This means the UK seller will be able to zero rate the sale as long as it has evidence of the goods leaving the UK and import VAT and customs duties will be due in the EU destination country under that country’s import regime.

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Found in: VAT

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