In this four part guide we’ll take you through the sometimes complex EU VAT regulations for Irish business selling goods and services online. The main factors which will affect VAT in your online store are: whether your business resides within the EU or not; whether you sell physical or digital goods and services and if you are selling business-to-customer (B2C) or business-to-business (B2B). In this first part we’ll look at selling physical goods remotely within the EU, defined by the EU as distance selling. See part two for VAT and digital services and part three for VAT and B2B sales.
Distance Selling is the EU definition of sales of physical goods that are not face-to-face, including not only online shopping but mail-order and telesales. The goods are sold between EU countries from a business to a non-VAT registered individual i.e. B2C. Digital goods are considered to be services and are therefore not included nor are sales of new means of transport (considered to be intra-Community acquisitions) and excisable goods (petrol, alcohol & tobacco). Here is an article by webmentor.ie on Distance Selling Regulations for Ireland and a list of the areas not considered to be Distance Selling. It also includes selling on e-commerce platforms such as Amazon and eBay but we are concerned with small business owned e-commerce sites. Further information for sellers on EU VAT and Amazon here and eBay here.
Your online business must be registered for VAT with the Revenue Commissioners and can apply that VAT rate (23% standard rate) on sales to other EU states until the threshold for sales for that particular country is reached.
Example: An Irish online seller of shoes can use the Irish VAT rate of 23% selling goods to Denmark instead of their rate of 25%. However, once they sell over the Danish threshold of DKK 280,000 (c. €37,500) worth of goods then they must registered for VAT in Denmark and impose the 25% rate. The subsequent tax collected is paid to the Danish tax authorities. This annual threshold does not have to a calendar year just any 12 month period.
You can sign up to each EU national tax authority here. You can also sign up to each authority before the respective threshold is reached. At a minimum you’ll need to supply: proof of VAT registration in Ireland; business registration details and a Letter of Authorisation from your accountant/tax agent that they are acting on your behalf. Other regulations may apply per country, Spain, for instance, requires proof that your business is not based there.
Once registered, there might be additional local VAT regulations to comply with: information to be included on the VAT invoice, length of time records have to kept, special rates for certain goods etc. For the online business owner this looks daunting, however it’s probably not the worst problem if you are reaching those sales thresholds per country! Your accountant should be taking care of those extra registrations and additional regulations and rates.
European VAT Rates & Thresholds
|Country||Standard VAT Rate*||Registration Threshold|
|Czech Republic||21.0%||CZK 1,140,000|
This is a summary of the standard VAT rates for comprehensive information on the various rates per country see the excellent Avalara VAT Live Guide.
Intrastat is an EU regulatory obligation for businesses to file their intra-EU physical goods transactions (purchases and sales) if they reach a monthly threshold – these amounts vary per country and are much higher than those for Distance Selling. Irish thresholds are €500,000 worth of purchases or €635,000 worth of sales from other Member States. The Revenue Commissioners have a detailed manual for download. They are increasingly being used by governments to keep track of VAT returns and generally submitted at the same time as VAT returns. Obligated Irish businesses would file theirs along with their VAT 3 return.
Here is a link to your obligations from the Revenue Commissioners. Straight from the horses mouth! It’s worth noting that invoices in any foreign currency must have a Euro equivalent. Digital invoices are equivalent to paper as long as the customer is happy to receive them in that format. Their creation can be outsourced to a third-party and stored in another EU country other than Ireland.
However, if your business has passed the distance selling threshold for a particular country – you need to issue an invoice according to the EU directive’s (2010) rules covering all of the EU and local laws. There is an official EU webpage purporting to show these, though the author couldn’t find anything. Perhaps you’ll have better luck! One key difference is the length of time that VAT invoices are required to be kept per country’s accounting laws. Also, it is best practise if there is a version of the invoice in the local language or the invoice is bilingual.
Stock & Fullfillment
If your stock is held in Ireland then there are no complications with VAT. Call Off Stock is when the buyer, in another EU country, stores & distributes the goods from a warehouse or the buyer’s own storage facility but the seller still has the Title of the goods. Most importantly, there is only one buyer. The sale of the goods is treated as distance selling so the seller does not have to register for VAT in the buyers country. However, if the seller is storing their goods in another EU country which could potentially be sold on to multiple buyers, this is treated as Consignment Stock (supply) and the seller must register for VAT in that country.
If your shipping/postage cost is the same as what you charge the customer that charge is not subject to VAT. However, if you charge the customer less than the cost of postage then it is considered part of the toal cost of the goods sold & therefore subject to VAT.
VAT & Selling to non-EU customers
If you are selling goods to customers outside of the EU you do not charge VAT. However you can still deduct the VAT on any costs or expenses incurred in the making of this product.
WooCommerce VAT Solutions
There are some very neat technical solutions available to ease the burden of VAT compliance. Guilder Commerce’s preferred e-commerce platform WooCommerce has a number of excellent plugins to meet these challenges:
EU VAT Compliance Assistant for WooCommerce
WooCommerce EU VAT Assistant
Yith WooCommerce EU VAT
WooCommerce PDF Invoices & Packing Slips
They include solutions for B2B sales (VIES), digital sales & invoicing which we’ll get on to in our fourth article on WooCommerce specific solutions to the myriad EU VAT issues.
If you have any queries, additional information to add, or indeed corrections on the above article, I’d love to hear from you firstname.lastname@example.org