Internet has provided the opportunity to be able to sell to any point of the planet from the most remote place.
Internet has provided the opportunity to be able to sell to any point of the planet from the most remote place. Online commerce has had an exponential boom in recent years, causing it to be present in almost all purchasing processes , although the purchase is not finally made in an online store.
This has led to the need to establish regulations in the financial field, these regulations aim to control that companies pay adequate taxes in the country that corresponds to them. For this reason, the current European VAT will be updated according to the needs that have arisen over the years.
Due to the number of obstacles that exporters of products could encounter between European countries, it has been decided to centralize and facilitate the VAT taxation system. This change in VAT regulation was imminent because it is estimated that each year 50,000 million euros are lost due to fraud in the taxation of this tax.
In this way, long-term cost savings would also be sought for companies that carry out cross-border trade since it is estimated that companies make an effort of approximately 11% more, compared to those that only make sales domestically .
Today we present the latest developments in European and Spanish VAT regulations so that you can apply them to your online store.
- Current VAT situation
- Changes in VAT in Spain
- › Reduce and unify thresholds in distance sales
- › Appearance of the“ Single Window ”platform
- › Marketplaces, responsible for collecting VAT
- › End of VAT exemption on imports
- Effects of the new VAT in the online world
- Summary of VAT changes in Spain
Current VAT situation
More than 60% of the European population buys online, which has meant an effort for the European Commission to establish a VAT regime between European countries. Currently, exports between member countries of the European Community are exempt from VAT , when it comes to a transaction between two merchants or companies. For example, if a seller of sheets of Spanish origin buys fabric from a Polish manufacturer, the Spanish buyer will have to self-assess VAT in Spain, since the invoice will not include VAT.
On the other hand, if it is a sale to an individual, the VAT of the seller’s country of origin must be reflected , which will have to pass the VAT on to the buyer. For example, if a private user of Polish origin places an order for T-shirts today from an online store located in Spain, an invoice would have to be made that reflects the current 21% Spanish VAT.
What will be sought with the change is to facilitate the process in these cases to create fairer competition throughout the European territory and avoid tax fraud. This new measure has arisen with the ambition to get to perfect the VAT Action Plan , formulated in 2016 and which is being optimized to avoid distinctions in the financial and tax sphere throughout the Eurozone.
Changes in VAT in Spain
On July 1, 2021, a new regulation on online VAT will come into force due to the boom in distance selling caused by Covid-19. The objective of this reform will be to avoid loss of income from taxes and to try to significantly curb VAT fraud in Europe. In this way, companies belonging and not belonging to the member states of the European Community will compete on equal terms .
These changes established by the European Commission want to improve the functioning of taxation in the online environment. This could represent a challenge for some online stores, so we recommend hiring the services of a tax advisor to facilitate and streamline tasks.
The main changes surrounding this reform of the tax system on internet sales are the following:
Reduce and unify thresholds in distance sales
One of the most significant changes in this regulation is that; If sales to another member country of the European Community exceed 10,000 euros in annual turnover as far as exports are concerned, the tax of that country of destination must be settled with its VAT rate. Until now, Spain had a threshold of 35,000 euros per year while other countries such as Germany had it of 100,000 euros. As the figures indicate, it was much more striking for a German company to market in Europe than a Spanish company.
This new reform of the VAT system will avoid making distinctions in these thresholds between European VATs. In addition, this taxation of internet sales will be done through a single platform called “EU Single Window” to facilitate compliance with the legislation for ecommerce.
Appearance of the “Single Window” platform
To prevent companies from not declaring VAT corresponding to their cross-border sales, the European Commission has created the “One-Stop Shop” platform through which not only will the European VAT be declared, but also the European VAT will be paid depending on the recipient country .
This means that as of July 1, companies that make sales over the internet to other member countries of the European community will not have to register for tax purposes in another member state . In this way, there will be greater compliance with VAT regulations since you will only need to register on this platform.
The marketplaces, responsible for collecting VAT
Another of the changes that will affect the VAT tax between European countries is that the marketplaces will be responsible for collecting VAT from their sellers and later it will be the marketplace itself that has to declare it.
Until today, marketplaces were mere intermediaries who were not involved in VAT taxation. However, after this new reform of the system, they will be recognized as if they bought the product and sold it to the final consumer. Therefore, they must have a record of transactions for the last 10 years and pay taxes on the “Single Window” platform like any other company that is dedicated to selling online.
End of VAT exemption on import
The last significant change is the end of the VAT exemption between European countries on imports . Until now, all imports of low value from countries of the European community were exempt from paying Spanish VAT, more specifically with a value of less than 22 euros.
This exemption has come to an end with the arrival of this change in the regulation, however, the exemption from paying customs tax for imports of less than 150 euros is maintained .
Effects of the new VAT in the online world
Europe seeks to promote competitiveness between countries and especially the unification as an Economic Community where more and more financial aspects are being regulated to achieve equity between states. In addition, with this change in the Action Plan, it is expected that the fraud that has been taking place in these years when taxing VAT between European countries will be reduced in a very significant way . This is because now, being so centralized from the same platform, greater control of transactions will be possible and bad practices will be reduced.
The management of each online store, whenever it addresses an intra-community audience, must study in depth how these changes in the VAT system can affect their business. As of July 1, a new line will be opened in the portfolios of the agencies that will propose to advise the internet sales sector and even carry out the pertinent steps in the “Single Window”.
From now on, electronic businesses must know what VAT tax rate must be paid in each European country to which they direct sales. This new intra-community VAT regulation aims to centralize procedures with its new platform, avoid fraud and optimize VAT taxation between European countries by eliminating excess bureaucracy.
Summary of VAT changes in Spain
The European Commission is looking for a definitive VAT system that works in favor of a single market for a long time to meet the need for a one-way VAT taxation across Europe. That is why the VAT Action Plan for 2016 has undergone some changes.
On July 1, 2021, a new regulation will come into force which seeks to centralize and facilitate VAT taxation with the following changes:
- Reducing and unifying the VAT thresholds of all countries to 10,000 euros per year in intercommunity billing.
- The “Single Window” as the only platform to carry out taxation.
- The “Marketplaces” will also be responsible for collecting VAT from their sellers and taxing it.
- End of VAT exemption on imports.
In this way, it will seek to avoid fraud in the taxation of the tax and increase competitiveness among member countries , since until now there could be some inequality in taxation due to the conditions of each country. In this way everything is centralized in Europe and you will no longer depend on belonging to one country or another to enjoy depending on what advantages.