As of 1 January 2019, the rules for declaring and fulfilling value added tax (VAT) for telecommunications, broadcasting and electronic services had been simplified and payers were able to use special scheme for imposing VAT (so-called MOSS). This means, that cross-border suppliers of digital services were allowed to comply with the laws of the country of establishment, provided that the turnover of the digital services to the final consumer in another State of European Union does not exceed 10 000 euros.
From 1 July 2021, this special scheme for imposing VAT will also be extended to all distance sales of goods within European Union and supplies of services to customers, which have remained unchanged for years.
Rules applying to distance selling now in force
Distance selling is a situation, when a company in one of the Member States sells goods to a non-taxable person, i.e. a consumer in another Member State, and delivers the goods to the buyer’s home. Today, all Member States have set different annual turnover thresholds for such cross-border distance sales and services, above which a company from another Member State must register as a taxable person in the Member State of the final customer. For example, in Estonia, the determined threshold for distance selling is 35 000 euros and when exceeded a taxable person from another country is obliged to register as a taxable person in Estonia and, once registered, to pay VAT in Estonia on the distance selling made there. The current scheme is often a complex and time-consuming process for business from another Member State. Firstly, the country in which consumer is located must be identified, which would allow the applicable VAT rate to be determined and it cannot be excluded that the necessary applications and documents for VAT registration will have to be submitted in the local language.
Most significant amendments
However, as of 1 July this year, national thresholds for distance sales of goods and services other than electronic services within the EU will be abolished and a single turnover threshold of €10 000 will be introduced. This means that if a company’s intra-EU cross-border turnover regarding distance selling and supplies of services to consumers to non-taxable persons in other Member States does not exceed 10 000 euros in calendar year, the place of turnover will be deemed to be the country where the company is established, and that company will be entitled to follow the VAT rules of its home country (the new special OSS scheme). This is irrespective of the number of Member States to which the goods are transferred or the number of Member States in which the services are supplied. This special scheme allows businesses to declare VAT on all cross-border sales on a single declaration and to pay all the VAT (at the VAT rate applicable in the country where the business is established) in their country of establishment, without having to register as a taxable person in the country where the final customer is located.
For example, if a Finnish company provides services worth 4,000 euros to non-taxable persons in Estonia, Latvia and Lithuania and does distance selling of goods worth 5,700 euros to the same countries in one calendar year, the company is entitled to declare the turnover of both the services and the goods as Finnish domestic turnover without having to declare it in all three beforementioned countries. However, should a company exceed the above threshold, there are two possibilities. Firstly, either to join the special OSS scheme, which allows paying all the VAT of the different Member States to the Estonian Tax and Customs Board, which will pass on the tax or, alternatively, to register for a taxable person in each country of location of the final customer to which the distance selling is made.
Implementation of the new rules is voluntary
The implementation and use of the OSS special scheme is voluntary for the company. However, it is important to bear in mind that the new special scheme can only be applied if the following conditions and requirements are met: the supplier is established or has a fixed establishment in one Member State only, the goods are sold or the service is supplied to a person established or resident in another Member State who is not a taxable person or a taxable person with limited tax liability registered in any Member State, and the total turnover of the intra-Community distance selling and the electronically supplied electronic communications service does not exceed 10 000 euros from the beginning of the calendar year. However, if a business does not wish to apply the special scheme, it will still be possible to register for VAT in any Member State where the VAT liability arises for the final customer on the sale of goods or services.
The correspondent amendments in the EU VAT Directive 2006/112/EC are already introduced and enter into force on 1 July 2021 and all EU Member States must change their domestic VAT acts for the same time.
Law office Turnstone