IMPORTANT INFORMATION FOR ECOMMERCE ENTREPRENEURS DELIVERING OVERSEAS
EU-wide, VAT has to be included in the price on the product page. Incorrect: 100 EUR + 19% VAT. Correct: 119 EUR (incl. VAT) - This is stipulated by the EU Distance Selling Act.
The correct VAT in every country
In the EU, local VAT on the item in question has to be paid in each country. This is also stated in the EU Distance Selling Act. If a shoe is shown on a product page in Poland, it has to be displayed with 23% VAT, in Sweden with 25%, and in Austria with 20% and so on.
If you deliver to another country in the EU, you can at first be subject to the VAT rates of your country of origin. If you exceed the specified turnover limit, however, the VAT of the country of destination is to be complied with. The country of destination is the country in which the goods physically arrive. It is irrelevant where the buyer has their billing address. Every country has its own threshold and currency fluctuations should also be taken into account when monitoring these values, according to the mail order business regulation of the EU.
Example: A German online retailer delivers 35.000 EUR worth of wine to consumers in France. He charges 19% German VAT. On the 16th June he exceeds the limit of 35.000 EUR. As of this day he is obliged to charge French VAT. The threshold was surpassed; the country of origin rule is replaced by the country of destination rule.
Applying for a VAT number abroad
If the respective threshold is surpassed in one of the 28 EU countries, you are subject to taxation in that country. And this from the first Euro over the threshold, as stipulated in mail order business regulation of the EU and in the German VAT Act §3c par. 1. That means applying for a VAT number and filing a tax return in the respective countries you deliver goods to. Unbelievable, but true: if you trade in the 28 countries of the EU you need 28 VAT numbers and have to regularly declare as well as pay local VAT!
Collection license needed
If you run a marketplace and also receive and forward payments in the name and by order of your merchants, you are operating a financial transaction business. In order to do this, you need an authorization from the Federal Financial Supervisory Authority. Generally, a collection license is sufficient, according to the Payment Service Directive of the EU. This legal rule is well-known in Germany through the Lieferheld court case (Cologne district court, November 29th 2011, reference number 81 O 91/11).
Applying for a bank license for exchange transactions
If you run a marketplace with international merchants and offer goods in different currencies you not only run high exchange rate risks, but are also obliged to apply for a bank license.
Example: A German marketplace operator for jewelry represents a watch retailer in New York. A Polish customer buys a watch from the latter. The marketplace is run in Euros, the customer pays in Zloty.
If the marketplace receives the amount in Euros and pays the New York retailer for his goods in USD, there is firstly the risk that the exchange rate has changed significantly in the meantime and secondly the marketplace operator exchanges Euros to US Dollars in order to pay the retailer. This is an exchange transaction which requires authorization from the responsible financial supervision. It is not a question of accepting foreign exchange (all acquiring banks offer this), it is one of payment in different currencies.
Compare Payment Service Providers’ prices
PSPs connect online shops with credit card acquiring banks. The costs of integrating and processing different payment methods are thus pooled. The eCommerce retailer benefits from services like risk management, reporting, fraud protection, and is relieved of the security requirements of the card industry. Furthermore, it allows the retailer to offer multiple currencies. The costs of PSP providers are often unclear and complex. They include software costs, one-off payments, setup fees, click fees, additional fees, and so on. Moreover, it is difficult to change PSP once it is installed with its plugin. As a universal PSP, ClearVAT is not bound to one single acquirer or payment network. This allows clients to switch PSP providers and acquiring banks quickly and easily!
Play by the rules—comply with regulations and laws
Of course, you could now ask if the Polish tax official even notices if you don’t pay tax in Poland, the country of destination, as an eCommerce shop. But tax evasion, even in another EU member state, is still an offence in Germany (§370 par. 6 of the tax code). Trouble with potential financial backers and investors will come knocking much earlier than the tax authorities.