Aimed at making life easier for businesses, the EU E-Commerce VAT Package simplifies the VAT reporting requirements when trading across European Union Member States. This package is part of wider EU VAT reform.
Our live blog collates vital information on the package, with updates whenever governments or tax authorities provide new information. Bookmark this blog or subscribe to our newsletter to stay updated with the latest developments.
Download our eBook, Understanding European VAT Compliance for more information on EU VAT.
Update: 14 June 2023 by Russell Hughes
Following Brexit and the introduction of the IOSS, EU customs has seen a significant increase in trade volumes. Now, the EU Commission has put forward proposals to reform current EU customs practices.
The new measures will embrace the digital transformation and lead to a simpler customs process by introducing a data-driven approach to EU Customs that will replace traditional declarations. The aim is to provide customs authorities with the tools and resources to prevent fraudulent behaviour from traders, enabling them to pick out those imports that threaten the EU’s tax take.
The new framework would simplify customs reporting requirements for traders, reducing the time needed to complete import processes by providing a single EU interface and facilitating data use.
The EU Commission has proposed a new EU Customs Authority to oversee an EU Customs Data Hub. Over time, the Data Hub would replace the existing customs IT infrastructure in EU Member States, which they believe will save up countries up to €2 billion a year.
The idea of the new Data Hub is that businesses can log all the information on their products and supply chains into a single online environment. This technology will compile the data provided by businesses, providing customs authorities with a 360-degree overview of supply chains and the movement of goods through machine learning, artificial intelligence and human intervention.
Based on the transparency of inputting information into the portal, these businesses will become trusted traders – allowing them to release their goods into circulation into the EU without any active customs intervention. This will allow customs authorities to prioritise their resources and prevent illegal and unsafe goods from entering the EU.
The Data Hub is looking to open by 2028 for e-commerce traders and 2032 for other importers. This will initially be voluntary up until it becomes mandatory in 2038.
The final pillar of the new reforms will be the abolishment of the €150 threshold at which customs duties are charged, effectively expanding the IOSS scheme. Currently, any goods imported at €150 or below are exempt from customs duties, whilst VAT is collected and reported on the IOSS return.
However, this reform will remove that threshold to ensure all goods will be brought into the customs duty regime and prevent fraudulent traders who look to undervalue goods for customs purposes. It is currently believed that around 65% of parcels entering the EU are undervalued.
Under the new reforms, online platforms and e-commerce sellers will become ‘deemed importers’ responsible for ensuring goods sold online to EU customers comply with customs obligations. Such platforms and sellers will charge VAT and duties at the point of sale and settle this via the IOSS return, no matter the value of the order. Therefore, import VAT and duty charges at the border for imported goods will no longer hit the consumer.
Looking for advice on how to handle these proposed changes? Contact our team of experts.
Update: 28 June 2022
In this episode of the Sovos Expert Series, Cécile Dessy speaks with Russell Hughes, Consulting Services Manager at Sovos, to explain how these new schemes have evolved during their first year.
Still have questions on how to stay ahead of OSS? Speak to our experts.
Update: 15 April 2022
It’s been just over nine months since the introduction of one of the most significant changes in EU VAT rules for e-commerce retailers, the E-Commerce VAT Package.
Under the new rules, the country-specific distance selling thresholds for goods were removed and replaced with an EU-wide threshold of €10,000 for EU-established businesses. Non-EU-established businesses now have no threshold.
Initially, the thought of charging VAT in all countries businesses sell to was overwhelming. Though, businesses now see many benefits from the introduction of OSS.
The biggest benefit for businesses is VAT compliance requirements simplification. OSS implemented one quarterly VAT return instead of meeting many different EU Member State filing and payment deadlines.
Businesses that outsource their VAT compliance have reduced their costs significantly by deregistering from the VAT regime in many previously VAT-registered Member States. Businesses also receive a cash flow benefit under the OSS regime as VAT is due quarterly instead of monthly or bi-monthly.
As part of this EU VAT reform, we saw the removal of low-value consignment relief. This change meant import VAT was due on all goods entering the EU. It brought many non-EU suppliers into the EU’s VAT regime, with the European Commission (EC) announcing over 8,000 currently registered traders.
EU Member States had some hiccups, including not recognising IOSS numbers upon import, leading to some double seller taxation. But for most businesses, IOSS enables them to streamline the sale of goods to EU customers for orders below €150. The EC recently hailed the initial success of this scheme by releasing preliminary figures showing €1.9 billion in VAT revenues collected to date.
Want to know more about the EU VAT reform and One Stop Shop and how it can impact your business? Download our detailed guide.
Update: 22 November 2021
As with any new initiative, IOSS has not been without its issues. Here we look at some of those issues early into the new VAT system.
Some clients tell us there is some confusion with their freight forwarders, who continue to operate the “landed cost” model even though the seller intended to sell under IOSS.
Under this model, the seller charges the customer an amount including VAT. The freight forwarder then imports the goods in the name of the customer. Then, the freight forwarder settles the customer’s import VAT liability and seeks reimbursement from the seller.
In this case, the local tax authority receives the VAT due as import VAT. However, freight forwarders still use this model in cases where the seller has provided its IOSS registration number.
Although the customer pays import VAT, the seller also accounts for supply VAT on its IOSS return. Double taxation must be funded by the supplier if the seller reimburses the freight forwarder without correcting the error.
The EC removed low-value consignment relief on 30 June 2021. It levelled the playing field and reduced the VAT gap by dealing with fraud. However, there appears to be a gaping hole in the system, meaning fraud is just as possible, and the playing field is anything but level.
Where a shipping document includes an IOSS number, the underlying assumption is that the goods are under €150, and the seller will pay the VAT due. The IOSS number is checked for validity but not identification of IOSS number ownership.
IOSS numbers are widely available online, especially for online marketplaces. We are hearing that some unscrupulous sellers are using valid IOSS numbers that belong to other businesses.
This activity allows them to sell goods knowing they will never have to account for VAT in the EU, thereby undercutting local suppliers. The owner of the IOSS number does not account for this VAT, and the tax authority will find this discrepancy during an audit.
There is confusion around certain categories of goods and their IOSS treatment. Businesses can sell magazines and other goods under a subscription service, and the subscription period can often be more than one year.
In an annual subscription scenario, there will typically be one payment at the beginning of the subscription and then a succession of deliveries of goods – 12 for a monthly subscription.
So, the question is, how are subscriptions treated under IOSS? Where IOSS is applicable, if the seller reports the full amount at the outset, there will be a mismatch between the VAT return and the imports. If the seller reports an amount equal to one month’s subscription month, then VAT is accounted for late since VAT is generally due at the earlier of the issue of the invoice or the receipt of the payment.
How is the IOSS eligibility assessed? Is it the value of each shipment or the value of the subscription considered when determining whether the intrinsic value is less than €150?
There is speculation that each consignment’s value determines if a seller can use IOSS. We put this question to one EU tax authority. They replied that we could find the issue of subscription treatment within the rules on when the seller must account for VAT. The rules clearly state that tax authorities consider goods supplied at the time when the seller accepts payment.
In this case, the tax authority recognises all 12 magazines as supplied when the seller accepts payment. If that payment is above €150, then IOSS is not available. Not all Member States share this view. It raises the question of which tax authority decides – where the business is registered for IOSS or where the VAT is due?
Need more information on IOSS and how it could impact your tax compliance? Get in touch with our team.
Update: 8 September 2021
Unfortunately, there were initial delays and teething problems when the EU introduced the E-Commerce VAT Package. We expected this with the adoption of such significant EU VAT reform, but as with any new scheme, the tax authority can resolve this over time.
Some examples include:
Some Member States disallow the import of specific categories of goods due to local restrictions, e.g. foodstuffs, plants, etc.
It’s sometimes unclear if freight forwarders have used IOSS or not. This confusion could lead to repeated errors of VAT underpayment or overpayment.
Some non-EU vendors are trying to avoid an IOSS registration by stating that the customer is the importer of record. While this occurred before IOSS, it did not occur as much as it does now – and was not always spotted or queried.
However, since the introduction of the IOSS, some tax authorities, including Germany, have questioned this approach. In some cases, the carrier who imports the goods acts for the non-EU vendor and the buyer is unaware of their identity.
Sovos is here to help you understand the latest EU VAT reform. Download our e-book or contact our sales team for more information.
Update: 29 October 2020
On 30 September 2020, the EC published its Explanatory Notes on VAT E-Commerce Rules. It provides practical and informal guidance on upcoming e-commerce regulations. The EU initially adopted this EU VAT reform under Directive 2017/2455 and Directive 2019/1995.
The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe. It specifically addresses: B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services.
The explanatory notes provide further guidance on applying OSS and IOSS schemes. It includes scenarios where Electronic Interfaces (such as marketplaces) are liable for VAT collection and remittance relating to underlying suppliers transacting on their platforms.
For EU-EU goods deliveries, suppliers are no longer required to register and file VAT returns in every EU Member State where they’ve exceeded distance selling thresholds. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods.
Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return for all their EU distance sales.
A similar scheme, the Mini One Stop Shop (MOSS), already exists for electronically supplied services by EU and non-EU suppliers. The EU will broaden its scope to include all B2C services where the VAT is due in a country where the supplier is not established.
B2C suppliers participating in OSS must use it for all supplies under the scheme. However, it shouldn’t be seen as a drawback because the EU designed the OSS scheme to reduce admin burdens.
For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements for service invoices only, but not for goods).
Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new IOSS simplification regime. It is designed to facilitate smooth and simple VAT collection on B2C imports from outside the EU.
With the concurrent repeal of the €22 low-value consignment relief, IOSS is an attractive option for suppliers looking to reduce administrative and compliance burdens.
Under this new EU VAT reform, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for IOSS in a single Member State. It allows them to collect VAT in the respective EU country of destination and remit monthly IOSS VAT returns.
The new e-commerce rules explanatory notes emphasise the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration.
Nevertheless, businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.
To learn more about this new EU VAT reform, listen to our on-demand webinar: A Practical Deep Dive into the New EU E-Commerce VAT Rules
It can be difficult to know where you stand regarding EU VAT changes and European tax laws. There have been sweeping changes implemented in recent years.
This blog breaks down the major updates, including the EU VAT reform, to help ensure your business is on the right path. Additionally, you can speak with our team of experts for personalised assistance with VAT compliance or have a look at our solutions for VAT compliance for e-commerce.
To keep up with the digital age, the EU changed how its VAT system works in July 2021. The EU e-Commerce VAT Package was part of this. So was the One Stop Shop (OSS), which intends to make cross-border trade less of a headache.
With OSS, companies can declare and remit the VAT due on certain sales in a single language and within just one Member State tax administration.
OSS introduced three schemes:
Prior to the EU VAT reform, e-commerce sellers of goods needed to have a VAT registration for each of the EU Member States that they traded in – providing they had a turnover above a particular threshold. The threshold was dependent on the country.
With the changes that arrived on 1 July 2021, these thresholds were replaced by a single, universal threshold of €10,000 for EU businesses. If turnover exceeds that figure, VAT must be paid in the Member State where the goods are delivered. Non-EU businesses have no threshold.
While the EU’s lowest agreed standard rate is 15% as per the VAT Directive. Luxembourg has the lowest standard rate at 17%, whereas Hungary has the highest at 27%. Other countries fall within that range.
On 8 December 2022, the European Commission proposed changes in relation to the VAT in the Digital Age initiative.
While nothing was been implemented at the time of publishing, the proposal offers up significant changes and is one of the more prominent developments in the history of VAT in Europe.
The Commission proposes changes to the VAT Directive, specifically affecting:
Again, the regulatory change is yet to come into effect. It requires formal adoption by the Council of the European Union and the European Parliament, as well as a unanimous positive vote by the Member States but if approved these will include significant changes.
If your company is based in the EU then VAT is likely to be chargeable on both purchases and sales of goods within the region. Exceptions do exist, however.
Where VAT is charged depends on the type of supply and is determined by the EU’s place of supply rules which determine where VAT is due, i.e., country of supplier or country of delivery.
The One Stop Shop abolished distance selling thresholds that were in place and created a centralised electronic platform for VAT. The change means that where intra-EU supplies exceed the €10,000 EU threshold (no threshold for non-EU companies), VAT is due in the Member State of the delivery – regardless of the level of sales in that country.
European businesses can take care of all their VAT obligations for sales across the entirety of the EU through the OSS. The scheme allows for any VAT due to be accounted for in a single VAT return, making life easier for businesses that trade across the EU. Companies trading in the EU are eligible to utilise OSS, and there is also a non-union OSS scheme for businesses outside the EU for digital supplies.
Visit our OSS guide for more in-depth knowledge of the scheme.
Get in touch today to understand how ever-changing VAT e-commerce rules in the EU affect your business.
Still have questions? Maybe we have answered them already below:
The most recent country to leave the EU was the United Kingdom. The UK hasn’t changed its VAT system however businesses selling into Europe have needed to change their business practices.
No, the UK maintains its own VAT rate and tax system. Different rules apply for businesses in Northern Ireland.
Yes, an EU country can change its VAT rate within the guidelines set by the EU VAT Reform.
Update: 28 March 2023 by Maria del Carmen
On Friday 31 March 2023 the grace period granted by Mexico’s Tax Administration Service (SAT) in the Miscellaneous Tax Resolution 2023 (RMF) ends. Taxpayers must transition to version 4.0 of CFDI, Comprobante Fiscal Digital por Internet, the electronic billing schema.
Document formats that will no longer be accepted following the end of the grace period include:
Authorized CFDI Certification Service Providers (PSCCFDI) must update their integration mechanisms to remain compliant with the new CFDI 4.0. Taxpayers must align their technologies with the changes that their PSCCFDI notifies.
The authority has the power to impose fines for non-compliance with the new CFDI tax provisions, when executing verification powers or within are fund application process.
These fines range from $ 19,700.00MXN ($ 1000.00 USD approx.) to $ 112,650.00MXN ($ 5500.00 USD approx). Repeated non-compliance can result in the tax authority preventively closing the taxpayer’s establishment for a period of three to fifteen days.
Fines of $ 400.00MXN ($ 20.00 USD approx) to $ 600.00MXN ($ 30.00 USD approx) will be issued for tax receipts that don’t include the relevant supplements as outlined in the SAT’s guidelines.
In extreme cases where damage to the federal treasury is proven, this is considered comparable to tax fraud. This would involve when CFDI is used for taxes calculation with non-compliance requirements of Articles 29 and 29-A of the Federal Tax Code.
The CFDI Version 4.0 became the only way to invoice, the tax authority has updated the following documents ahead of CFDI v4.0 transition:
Companies will need to be mindful of these changes and how to implement them to ensure ongoing compliance during the transition to CFDI 4.0.
Need to discuss compliance with Mexico’s e-invoicing requirements? Speak to our experts.
Update: 1 February 2023 by Maria del Carmen
CFDI, which stands for Comprobante Fiscal Digital por Internet, is the electronic billing schema defined by the Mexican federal tax code. It has been mandatory for companies that do business in Mexico since 2011.
CFDI aims to increase visibility into companies’ tax liabilities so the government can ensure it is receiving accurate payments. It has been successful, with audits based on the legislation revealing a 34% increase in VAT collected in a single quarter.
Tax legislation in Mexico requires additional information when companies make certain transactions. Named “complementos” or supplements, the additional information must be attached to the main CFDI.
There are 30 main CFDI ‘complementos’, each with its own essential components and requirements. There is also a validation process and cancellation process to follow and a wide range of penalties for non-compliance.
Read our Mexico e-invoicing guide to learn more and ensure compliance with this complex VAT landscape.
On 27 December 2022, the Mexican Tax Administration Service (SAT) published the Resolution Miscellanea Fiscal (RMF) 2023. Each annual revision sets outs rules and adjustments for CFDI, a key component of Mexico’s electronic invoicing system.
The RMF entered into force on 1 January 2023.
Among the most important rules is the extension of the grace period for issuing certain documents. Now extended to 31 March 2023, the provision covers the following documents:
The RMF 2023 states cancellations of the CFDI cannot be made later than the month in which the annual declaration of the ISR (tax on income) must be submitted. That’s in April for individuals, and in March for companies.
The resolution also states that corrections to the payroll payment CFDI (CFDI de nómina) can only be made once and no later than 28 February 2023.
Taxpayers that carry out volumetric controls of hydrocarbons and petroleum products may continue to issue a daily, weekly, or monthly CFDI for all operations carried out with the public, until 31 December 2023.
Including supplement “Hidrocarburos y Petroliferos” in the CFDI will become mandatory 30 days after the SAT publishes the complement on its website.
The RMF states until 31 July 2023 no fines will be imposed and it will not be considered under the crime of smuggling if the Carta Porte supplement does not have all the requirements indicated in the CFDI Filing Guide.
To prove the transport of goods or merchandise, the intermediary or transport agents must now issue the CFDI type income (CFDI tipo ingreso) with the Carta Porte Supplement – instead of the CFDI type Traslado.
Taxpayers involved in the motor transport of dedicated services are subject to additional rules. Those who provide the service to a single client or contractor through the specific assignment of vehicle units may issue the CFDI type income (CFDI ingreso) to cover the entire service provided without the Carta Porte Supplement.
In these instances, the client or contracting party must issue the CFDI of transport (CFDI de transporte). This includes the Carta Porte supplement for each trip, which must be related to the CFDI type income (CFDI ingreso) issued by its carrier.
Additional regulations are established regarding the issuance of CFDIs related to bareboat charter services, for a specific time, per trip, and ferry modality.
The RMF includes information about the Resource Identification Supplement and Expense Bill of Third Parties provision, this will become mandatory 30 days after the tax authority publishes it on its website.
For further questions don’t hesitate and get in touch with our experts today.
All European countries charge VAT on goods and services. VAT is a consumption tax added during each production stage of goods or services.
Although VAT is near-universal according to the EU VAT Directive, VAT rates within the EU do differ.
This is because the EU VAT Directive allows Member States to choose whether to implement specific measures. Our guide on understanding VAT compliance explores this in more detail. Refer to this resource for VAT compliance for eCommerce.
Authorities in the EU charge VAT on all taxable supplies of goods or services at each stage of the supply chain. Our blog on who pays VAT, the buyer or seller, explains why in more depth. This is a significant distinction from Sales Tax, which only applies to the final supply. Some goods and services, such as healthcare and financial services, are exempt from VAT.
Companies must also distinguish if they are supplying goods or services to another business (B2B) or a private individual (B2C). This difference dictates how and where they need to charge VAT.
The general rule for B2B is that the product or service is taxed where the customer is established, while B2C services are taxed in the supplier’s country.
There are some special rules, however, such as those related to immovable property or events.
The situation starts to get complicated when transporting goods between countries. The taxable person must take the nature of the goods supplied and how the supply takes place into account.
When dispatching or transporting goods between businesses in different EU Member States, Intra-Community Supply (ICS) and Intra-Community Acquisition (ICA) of goods occur. An Intra-Community Supply of goods is a transaction where the goods are dispatched or transported by, or on behalf of, the supplier or customer between the EU Member States and is exempt, providing it meets certain conditions.
At the same time, a customer making an Intra-Community Acquisition is a taxable transaction. Where the ICA has been carried out define the location of tax, namely the location of the goods after the transport has finished.
Different rules apply to the export of goods to countries outside of the EU where the VAT is charged in the country of import. Instead, the location of the goods once they’ve arrived sets where the supply is. It is then treated as zero-rated in the Member State of export if it meets specific evidence requirements.
We know how complicated this sounds and our experienced team can answer your questions about this side of VAT. Contact our VAT experts here.
Generally, the business charges output VAT on the supply when the supplier carries out a taxable supply. The customer then deducts input VAT on the purchase, if valid to do so.
In some instances, the reverse charge mechanism applies. The reverse charge requires the customer to account for the VAT and is also known as a ‘tax shift’.
Where it applies, the customer acts as both the supplier and the customer for VAT purposes. The company charges itself the applicable VAT and then, where that service relates to taxable supplies, it recovers the VAT as input tax in the VAT return. The VAT charged is instantly reclaimed.
Typically, the customer must provide the supplier with a valid EU VAT number to use the reverse charge.
For an entry-level explanation of VAT, why not read our blog ‘An Introduction to EU VAT?’ or our EU VAT Buster.
Whilst the general rule on supplies of goods above applies, the rules have changed over the years to apply VAT where the goods are consumed.
When a business sends goods from one Member State to a private individual residing in another Member State, the VAT rate of the country of the customer should apply – unless the supplier can benefit from the EUR 10,000 threshold per annum.
In such a case, the supplier can charge the domestic VAT rate and report the sales below this threshold in the domestic VAT return. However, this exemption does not apply to suppliers established outside the EU or keeping stock in several EU countries.
To minimise the administrative burden of businesses registering in all EU Member States where the goods are delivered, the EU launched the OSS (One Stop Shop).
OSS schemes have simplified the supply of goods by taxable persons to private consumers:
Businesses established in the EU are entitled to use the Union and Import schemes, whereas non-EU companies can take advantage of the non-Union, Union and import schemes.
IOSS (Import One Stop Shop) simplifies the registration obligations for sellers established outside of the EU that sell goods to private individuals in the EU. Similar rules apply for the OSS, allowing the seller to register in one Member State where they account for VAT in their VAT returns.
Other advantages of using this scheme include exemption from import VAT and avoiding customs duties. This scheme, however, is restricted to consignments up to EUR 150.
As per the legislative proposal published by the European Commission on 8 December 2022, the EU intends to widen the scope of OSS to cover more goods and services.
Ready for a deeper dive into VAT rates? Here’s an overview.
The EU’s lowest agreed standard VAT rate in the VAT Directive is 15%, but it is not applicable in any of the EU Member States. The lowest standard VAT rate in the EU is in Luxembourg at 17%, followed by Malta at 18% and Cyprus, Germany and Romania at 19%. Hungary is one of the EU countries with the highest VAT rate at 27%, followed by Croatia, Denmark and Sweden with 25%.
Annexe III of the VAT Directive mentions the threshold for applying reduced rates within the EU Member States. The rate cannot be below 5%.
There are three types of special rates:
When concluding if you should charge VAT to your customers in the EU, consider the following:
EU VAT is always subject to change, so don’t be caught with outdated information. Follow our blog for the latest news on EU VAT rates and analysis of major developments the moment they happen or speak to an expert.
The EU VAT E-Commerce package has been in place since 1 July 2021. This applies to intra-EU B2C supplies of goods and imports of low value goods. Three schemes make up the package. These are based on the value of goods and the location of the sale of goods.
All OSS schemes are currently optional. The schemes mean taxpayers can register in a single EU Member State and account for the VAT due in other Member States.
For companies outside of the EU, the package schemes that apply are:
Want to understand how OSS and IOSS work? Keep reading!
Have IOSS specific questions? Our tax experts answer common questions in our IOSS guide. Or learn more about VAT compliance for eCommerce here.
Exporting products to the EU is challenging. Couriers often have a bewildering number of services. Prices differ from service to service.
There’s no easy way to find fast, cost-effective shipping services, but here are tips to help:
Businesses with a certain turnover must register for VAT. This varies from country to country. For example, the UK’s VAT threshold is £85,000 for established businesses. If you are interested in a business solution, please get in touch with our sales team.
Registering for VAT takes time. Each Member State has its own process for obtaining a VAT number. VAT compliance differs from Member State to Member State.
For non-EU companies, appointing a Fiscal Representative might be necessary. A Fiscal Representative acts on behalf of companies in a local VAT jurisdiction, managing VAT reporting and other requirements. For IOSS, most non-EU businesses will need an IOSS intermediary.
We know registering for VAT is difficult and involves understanding place of supply rules, fiscal representation and many other elements.
The EU VAT E-Commerce package enables taxpayers to register in one Member State to account for VAT in all Member States.
In most cases, a VAT number will be mandatory because of your business’ activity; in some cases, it will be voluntary. There are many benefits to applying for a VAT number.
These include preventing financial penalties and receiving EU VAT refunds. EU VAT refunds depend on certain circumstances, such as on VAT exempt items.
The OSS scheme is currently optional. Before registering businesses should consider the benefits and impact on their supply chain.
When a supplier obtains either an the Member State that grants the VAT number becomes known as the Member State of Identification.
As the UK is no longer part of the EU, registering for OSS as a UK business means using the Non-Union OSS, Union OSS or IOSS schemes. There is no need to have a normal VAT registration in the EU to apply for IOSS or a non-Union OSS VAT registration, however, a local EU registration is required before obtaining the OSS registration.
The first step is to understand if an needs appointing. The intermediary, usually an agent or broker, submits the IOSS returns on behalf of the company.
The UK business will need to choose the Member State it wants to register with for the non-Union OSS scheme.
If the UK business has warehouses in the EU, then the company will still need local in each Member State with a warehouse, but they can choose one Member State for OSS registration.
The Northern Ireland Protocol adds even more complexity to cross-border trade. Stop browsing the internet for unhelpful answers; contact our experts for advice instead.
Our team of experts can help you understand OSS and IOSS further. Don’t hesitate to get in touch today, especially about the Northern Ireland Protocol’s effect on trade.
The USA doesn’t have VAT. The equivalent is Sales Tax, with its own permit and tax ID.
If a US company wants to sell goods into Europe it can register for a VAT number with the relevant Member State tax authority. The business’ supply chain will determine if / where a VAT registration is required.
This depends on the product or service and whether the US company has activity in the UK that requires it to become VAT registered such as selling low value goods or importing in its own name into the UK.
The cost of international shipping to Europe varies, depending on where you send goods from and how quick delivery is.
Costs for shipping from the USA to Europe vary, depending on if they are express or standard shipping times. Different couriers charge different prices too.
This depends on package size, insurance and delivery speed.
Shipping from the EU to the US can take anywhere from four days to four weeks, depending on customs and import requirements.
Speak to our experts. They will navigate you through the complexities of the EU VAT landscape.
Tax has always been challenging and ever-changing VAT regulations across Europe add to the complexity, requiring technology adoption to support compliance- related activities.
It’s time for businesses to evaluate how efficiently they’re handling their VAT compliance obligations.
We created this checklist to help you assess whether you already have an effective, scalable solutions that’s optimized for the diverse range of compliance requirements and future-proofed to adapt to coming changes.
If you can tick all the boxes, you’re on the right path to mitigate risk and meet the demands of VAT digitization.
How does your current VAT compliance solution measure up?
Can’t check all the boxes? Don’t worry, Sovos helps ease the increased demands of tax digitization so you can prioritise your core business . We take a future-facing approach to always-on tax compliance with intelligent tools that provide data insights for a competitive advantage.
Let us remove the stress of constantly changing legislation: Get in touch with an expert now.
Learn more about Sovos’ periodic reporting solution for VA T and SAF-T and mandatory e-invoicing solutions.
Nearly every major economy has a form of VAT. That’s 165 countries, each with its own compliance and reporting rules. The main exception is the United States. VAT is by far the most significant indirect tax for nearly all the world’s countries. Globally VAT contributes more than 30% of all government revenue.
Levying VAT is a term used to describe when a company collects VAT on behalf of a tax authority. This happens at each stage in a supply chain when a taxable event occurs. A country’s tax rules define what a taxable event is.
In a nutshell, VAT essentially turns private companies into tax collectors.
VAT is due on nearly all goods and services. This is up to, and including, the final sale to a consumer – that’s you and me.
Applied correctly, VAT should be cost neutral for most businesses. Companies collect VAT from their suppliers, then pay this money to the government. In the UK, this is normally every three months.
As a business this means:
Companies can reclaim the VAT on some of their purchases. When applicable, this means your business pays less VAT when its VAT return is due.
Essentially, this encourages businesses to spend and help an economy grow.
Another thing a company can do is postpone its VAT accounting. There are different reasons why this is allowed, for example, in relation to import VAT.
We know VAT isn’t easy. Speak to one of our tax experts today about overcoming your VAT compliance headaches. Or read this easy-to-understand guide to learn more about the EU e-commerce VAT package.
So what is a VAT return?
A VAT return is a document listing all the VAT you have collected and what you are reclaiming VAT on along with various other information on sales and purchases in the period.
Submitting VAT returns is a legal requirement in most countries. The format and frequency vary around the EU, so it’s essential to keep
In addition to VAT returns, businesses might have to submit other declarations. This depends on the company’s trading activity and the requirements in the Member State of registration. This could include or . These can be quite complicated, as we explain here.
Understanding your VAT obligations also requires mapping a supply chain for the country of registration.
The following information applies to larger businesses or businesses selling into the EU.
EU VAT can be overwhelming and exhausting. For some relief, why not download our European VAT guide or read more about VAT compliance for eCommerce here.
So, what is the difference between Sales Tax and VAT?
VAT is a broad-based consumption tax and a form of indirect taxation. It is imposed on goods and services at each stage of the supply chain, with each party paying the government the tax and passing the final cost onto the ultimate consumer.
The idea is that each party effectively only pays VAT on the value added to the product or service. This is because the party can recover the VAT on associated costs (of course, there are exceptions). One of the disadvantages is that it requires accurate accounting.
On the other hand, sales taxes are generally taxes placed on the sale or lease of goods and services.
Usually, the seller collects the tax from the purchaser at the point of sale. Sales tax is calculated by multiplying the purchase price by the applicable tax rate. The seller at a later stage transfers the tax to the responsible government agency.
The EU VAT Directive 2006/112/EC establishes the rules for where VAT is due in the EU. Member States must implement these rules in a uniform way to avoid the possibility of double or no taxation. This blog goes into details how VAT between European countries works.
VAT in the EU happens when:
There’s a supply of goods – Where goods are not transported, the place of taxation is where the goods are made available to the customer. Where the goods are transported, the place of supply is where the transport starts (unless an exemption applies).
There’s a supply of services – For B2B transactions the place of taxation is generally where the customer has established their business. This applies to “intangible” services where the place of consumption cannot be determined easily.
There are certain where the place of consumption can be determined. These are:
A thing called intra-community acquisition of goods occurs – The place of taxation is the place where the transport ends (i.e., the EU country where the goods are finally located after transport from another EU country).
At the point goods are imported – The place of taxation is where goods imported from non-EU countries are generally taxed (i.e., in the EU country where they are cleared for free circulation).
There are many reasons why an EU country uses VAT.
VAT can be adjusted up and down depending on how a country’s economy is performing quickly. This means a country can raise taxes quickly or support a certain sector by reducing VAT.
Once collected, the money can be spent on public services, infrastructure, healthcare and other important growth initiatives.
But wait, what about those pesky questions like “should I charge VAT to EU customers?” or “do I pay VAT if buying from Europe?”. We hear these all the time from customers who struggle with VAT rates across different EU countries.
Standard rates, reduced dates, special rates. What’s the difference?
And then you have super reduced rates and zero rates? Let’s not forget intermediary rates.
If your business is expected to charge VAT to EU customers, or you yourself are faced with paying VAT on a purchase when buying from Europe, it’s important you feel confident applying the right VAT rate each and every time.
Have a question about the many different types of VAT rates in the EU? Our tax experts are yet to receive a question that stumps them, and they will happily help unload you from this burden.
Sometimes companies don’t have to pay VAT. This happens when the goods or products they sell fall into an exempt category.
Some examples of exceptions include education and training, charity fundraising and insurance. Insurers instead pay a tax called (IPT).
A VAT exempt business cannot register for VAT, nor can it reclaim VAT. This is slightly different to zero-rated goods or services. In that case, VAT is charged, but at 0%. Some companies can be partly exempt too.
VAT exemptions differ country to country so it’s important to check a tax authority’s website to see whether your business needs to pay VAT. ? We love setting our clients free from their tax compliance burdens so they can focus on growing their business.
Read our blog to VAT exempt goods and services in Europe.
The seller collects VAT from their buyer and pays to the relevant tax authority.
Learn more about buyer and seller VAT in our blog.
Yes. A person or company buying a service or product pays the tax when the item is chargeable.
Sellers pay VAT on any items they purchase for their own business. The VAT they collect from their own customers is paid to HRMC. In some cases, sellers also need to self-account for the VAT due from their customers.
VAT is 20% in the UK. A buyer pays this to the seller when they purchase an item, product or service. There are also some cases where the seller pays the VAT by way of a self-accounting mechanism.
Sales tax is found in the United States and is a tax applied at state government level on the purchase of goods or services. VAT is a consumption tax and is collected by all sellers in a supply chain, not just charged to the final consumer.
Our large advisory team can help you navigate the complexities of modern VAT compliance. Don’t hesitate to get in touch today.
Changes are coming to Portugal’s Billing SAF-T reporting requirements for non-resident taxpayers that trade in the country.
The process may be stringent but that doesn’t mean it has to be difficult for your company. Here are four things you need to be aware of about Portugal’s billing SAF-T obligations.
Billing SAF-T is already compulsory for resident Portuguese companies but from January 2023, non-resident VAT registered companies are also obligated to submit a monthly billing SAF-T. The first report is due on 8 February 2023 and has particular requirements, which we discuss below.
The monthly deadline for submitting the Billing SAF-T is the eight day of the month following the reporting period.
A unique requirement to Portugal is that the Billing SAF-T file must be generated by ‘certified billing systems’ as designated by the tax authorities. Failure to comply with this requirement is subject to a fine.
Non-resident taxpayers need to ensure they are using a certified billing software to remain compliant.
Sovos’ SAF-T cloud solution is recognised as a certified billing software by Portugal’s tax authority. This makes staying on top of Portugal’s SAF-T Billing report obligations simple, with customised options available for customers needing to take a tailored approach.
Portugal’s SAF-T requirements include specific formatting for generation and submission. Based on the original OCED 1.0 schema, this includes a specified header, master files, and source documents.
For the most part, information in the schema is conditionally required, meaning most fields only need to be submitted if the relevant data exists in a taxpayer’s source system.
Taxpayers must be able to generate the required fields in their system and understand which data is required for submission.
Portugal’s tax authority has continued to introduce new requirements and extend the scope of SAF-T in the country. Changes include stricter integrity and authenticity requirements and reducing the time window for invoice reporting obligations.
The tax authority’s changing requirements and increased visibility put additional strain on taxpayers to submit compliantly and on time.
Sovos’ Managed Service can help ease tax compliance burden for companies operating in Portugal and beyond. Our team of tax experts combined with our tax technologies help companies with filing and reporting obligations. Speak to our team to learn more about how Sovos can help solve tax for good.
The European Commission has announced its long-awaited proposal for legislative changes in relation to the VAT in the Digital Age (ViDA) initiative. This is one of the most important developments in the history of European VAT, and affects not only European businesses, but also non-EU companies whose businesses trade with the EU.
This guide about VAT in the Digital Age will provide you with an overview.
The proposal requires amending the VAT Directive 2006/112, its Implementing Regulation 282/2011, and Regulation 904/2010 on Administrative Cooperation on the combat of fraud in the field of VAT. They cover three distinct areas:
This regulatory change proposal will still need formal adoption by the Council of the European Union and the European Parliament under ordinary legislative procedures before it can come into force. In tax matters such as these, the process requires unanimity among all Member States.
This blog focuses on VAT digital reporting obligations and e-invoicing, whereas future updates from Sovos will address the other two areas.
The European Commission has, at this stage, chosen not to propose regulation regarding the transmission channel of the reported data to the tax authorities. This is currently left to Member States to decide on.
The reason for this decision is likely because it’s a technical issue, and that the discussion would have slowed down the process of publishing this proposal. The European Commission also appears ambiguous about whether it would want to regulate this in the future.
Many countries primed to introduce continuous transaction controls (CTCs) have been waiting for EU regulators to provide an answer to what rules the individual Member State will need to abide by. It remains to be seen whether this proposal will embolden these Member States to move ahead with plans, despite the non-final status of the proposal. It’s noteworthy that Germany filed for a derogation from the current VAT Directive to be able to mandate e-invoicing just a few days before the original date that the Commission had planned to publish this proposal – 16 November 2022.
Speak to our tax experts to understand how these proposed changes will affect your company.
Part V of V – Christiaan Van Der Valk, vice president, strategy and regulatory, Sovos
Click here to read part IV of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of strategy and regulatory, Christiaan Van Der Valk to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Christiaan Van Der Valk: The digitization of VAT and other taxes considerably expands the scope of the finance and transactional systems that need to meet specific – and ever-changing – government requirements. This phenomenon of broadening and decentralizing tax compliance in a company’s system and process landscape happens at the same time that more of these applications (for accounts payable automation, EDI, procurement, supply chain automation, travel and expense management, order-to-cash, customer communications management etc.) are used on a SaaS basis in multitenant mode.
This requires you to take stock of the applications that may come within the scope of VAT requirements in all relevant jurisdictions, and to review vendor contracts to ensure clarity as to responsibility for compliance. Procurement practices to license such external applications may also need to be reviewed to ensure proper contracting around tax compliance from the start.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Christiaan Van Der Valk: A key success factor is the degree to which IT and tax can team up to affect change in the organization. The default response to indirect tax changes will be to view these as evolutionary and best resolved by local subsidiaries. The introduction of CTCs, however, is a paradigm shift and one of the consequences is that solving these challenges in a decentralized manner can be harmful to a company’s digital transformation potential. IT and tax need to work closely together to raise awareness among all corporate and country stakeholders on the importance of a coordinated, strategic response to this profound change. The role of tax technologists who specialize in these interdisciplinary challenges cannot be underestimated.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
Part IV of V – Ryan Ostilly, vice president of product and GTM strategy EMEA & APAC, Sovos
Click here to read part III of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of product and GTM strategy, Ryan Ostilly to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Ryan Ostilly: IT teams will have to work hard to ensure their core finance and transactional tax systems have the enhanced capability to extract, transform, remit and consume real-time data with all tax jurisdictions across their global footprint, in compliance with an ever-changing myriad of legal and procedural requirements. With the pace of disruption accelerating, governments are rewriting the rules on taxpayer control and engagement, forcing direct connection and intimacy with the data itself.
I fear that in a growing number of cases, the owners of the data may be functional departments. The IT department will need to evolve its role in this relationship, viewing the government as a critical business partner – one with whom they must always be connected, continuous and complete.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Ryan Ostilly: In this modern era of government-initiated tax transformation, the successful IT department will pursue a proactive strategy that prioritizes a connected, continuous and complete framework for government mandates and Continuous Transaction Controls (CTCs). These three principles are:
Connected – Architect a simplified integration and vendor strategy. Reduce exposure to multiple integrations and heavy projects when adopting new jurisdictions or implementing changes.
Continuous – Partner with regulatory and legal experts on a regular basis. Review upcoming mandates and assess the impact on your current and future business requirements.
Complete – Think beyond technical aspects and schemas. Partner with tax subject matter experts when translating and validating mandate requirements, as these outputs will define the financial and tax position of your company with the tax authorities in real time.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
Part III of V – Eric Lefebvre, chief technology officer, Sovos
Click here to read part II of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our chief technology officer, Eric Lefebvre to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Eric Lefebvre: Centralization is the key, but there is a process that needs to be followed to execute correctly. At the outset, centralization needs to start with business processes, practices, tools and standardization on data push/pull technologies across the organization. Next, IT needs to consider data based on SLA-based needs. Starting with:
Delivery Data:
Once this has been solidified, IT can then focus on operational data, which contains:
IT departments need to focus on availability of data by adding multiple replicated sources of that data. Location of data is another critical need driven by mandates mostly shifting to keeping data local, as we are seeing in countries such as Saudi Arabia and many other East Asian nations. IT departments need to ensure that satellite data stores can be provided, which are critical to countries with those specifications. Centralization of processes and tools for delivery of data is step one. For step two, data needs to be split, moving away from storing data for years in a single data store, making it impossible to move/replicate and make it available.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Eric Lefebvre: As organizations make the move to a centralized approach, they need to be aware that the blast radius of “failure” affects more than a single country. To combat this, IT organizations need to have strong procedures and plans in place that help to both avoid these situations and quickly limit the damage if a problem does occur. I view it as three distinct focus areas:
Change control procedures. Strengthen impact controls not just for code changes or operational updates, but also include regulatory changes and configuration changes.
Testing procedures. Step away from just regional scope testing and incorporate global end-to-end synthetic testing, starting from the edge service to all the backend servers and back.
Incident management. Pivot from backend monitoring to a central monitoring and outage single pane view, supported by a global operations center in a follow the sun style model.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Part I of V – Steve Sprague, chief commercial officer, Sovos
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our chief commercial officer, Steve Sprague to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Steve Sprague: CIOs need to make a choice – do they pivot with these changes and adopt a centralized approach to their data, systems, business processes and applications, or do they run a decentralized platform where every country is left to make their own decisions? More than 95% of companies have implemented a decentralized approach as these mandates have grown country by country. However, as Latin America has grown from only three countries instituting these mandates in 2014 to more than 14 countries implementing them now, and with another 30 countries around the globe beginning the process of implementing similar regimes, including economies across Asia and Europe, like France and Germany – a decentralized approach leads to several long-term problems, including:
• Limited visibility outside of the country
• Multiple tools and vendors across different countries
• Disjointed processes with a focus on fulfilling local obligations only
• Solving the “problem at hand” vs. looking at the bigger picture
• Poorly defined roles and responsibilities
• Inconsistent approach to implementing additional countries
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Steve Sprague: IT should focus on the end goal: implementing a centralized approach to these government mandated e-invoicing laws to ensure a globally consistent approach to all digital filings. There will be cost reduction as the number of vendors and tools are consolidated, and risk will be further mitigated through increased standardization and visibility. I can’t overstate the importance of implementation synergies as requirements increase and expand. This is only going to get more complex as time goes on. The clarity of roles and responsibilities is the other benefit to IT teams, as this approach will lead to clearly defined areas of focus for the team. Finally, alignment of analytics through one data hub will now be possible, providing a centralized dashboard for your global operations.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
Meet the Expert is our series of blogs where we share more about the team behind our innovative software and insurance premium tax (IPT) compliance services.
As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about regulatory changes and developments in global tax regimes to support you in your tax compliance.
We spoke with Sean Burton, senior compliance services representative who explained Slovakia’s specific IPT reporting requirements and shared some of his top tips to ensure compliance.
I’m a senior compliance services representative for IPT at Sovos. I joined the company just over three years ago and have mainly worked with clients writing global insurance programmes, exposing me to a wide range of scenarios within IPT.
My day-to-day role now involves overseeing the review and return preparation process for associates and representatives’ data, ensuring accurate submissions are prepared in a timely manner. The final step in this sequence is for me to sign off the final returns and pass them to our client money team. Outside of this work I deal with client queries, assisting with more complex annual reporting requirements and submission of the Slovakian IPT returns.
The IPT tax regime in Slovakia took over from the previous Non-Life Insurance Levy tax on 1 January 2019. Any policies incepted on or after this date are subject to the IPT tax as opposed to the old levy.
The tax rate remained the same at a flat 8% rate across all business classes.
There are three tax points for IPT in Slovakia:
This offers insurers greater flexibility with their tax points in comparison to other territories, allowing the insurer to pay taxes either upfront or spread across multiple returns in installments. The main point here is once a specific tax point has been selected, the insurer must use it for the next eight submission periods. After this they can change the tax point should they wish.
Slovakian IPT is submitted electronically via an online tax portal. The submission and payment are due at the end of each quarter.
As with most territories that have moved to online filings, the Slovakia tax authorities now require more specific information for each policy. As a result, Sovos now requests an additional field in our data template so that we can report this accurately.
Type of movement:
E/R – Issuance of a premium/renewals: grouped on the tax return by class of business. It’s important to note that an overall negative position for a specific business class is not permissible and will be rejected in the Slovakian Tax Portal.
S – Supplementary premium: the case whereby a premium or part thereof, is increased, reduced or cancelled. These premiums are reported within Box 19 on the Slovakian IPT return, where the total can be either positive or negative.
C – Correction of error: In the case of a correction of error a supplementary declaration must be submitted for the appropriate period affected.
This can be a problem for insurers who haven’t previously collated this information and it’s not part of their current internal booking systems, which can take time to update.
Another issue for insurers writing policies with a long duration over a number of years is that whilst the IPT regime took over from the old Non-life insurance levy (NLIL), NLIL can still be due if the policy incepted prior to 2019. Therefore, it’s important for insurers to be aware of this distinction and ensure both taxes are paid accurately.
My top tip for IPT reporting in Slovakia would be to collect as much detailed policy information as possible to complete the separate sections of the IPT return compliantly.
This will also help insurers be organised for any further updates to Slovakian reporting in the future. Requesting detailed policy information is a trend we’re seeing across all territories and insurers need to be prepared for this.
Firstly, at Sovos we have a good connection with local associates in Slovakia. This means we can keep our finger on the pulse with any IPT related legislative changes that arise in Slovakia.
Secondly, the online submission process requires each box to be manually inputted with information such as premium tax amounts, contact information and tax point selection. Leaving this process in our hands will certainly save insurers valuable time.
Have questions about IPT compliance? Speak to our tax experts or download our e-book, Indirect Tax Rules for Insurance Across the World.
France is implementing a decentralised continuous transaction control (CTC) system where domestic B2B e-invoicing constitutes the foundation of the system, adding e-reporting requirements for data relating to B2C and cross-border B2B transactions (sales and purchases).
Under this upcoming regime, data or invoices can be directly sent to the Invoicing Public Portal ‘PPF’ (Portail Public de Facturation, so far known as Chorus Pro) or to a Partner Dematerialization Platform ‘PDP’ (Plateformes de Dématerialisation Partenaires). In addition, there are also Dematerializing Operators (Operateurs de dématérialisation) that are connected to either the PPF or a PDP.
Requirements for these portal and platforms have been published.
The Ministry of Economy published Decree No. 2022-1299 and Order of 7 October 2022 on the generalisation of e-invoicing in transactions between taxable persons for VAT and the transmission of transaction data (together known as ‘new legislation’), providing long-awaited details for PDP operators and PPF.
The new legislation introduces rules concerning the application process for PDP operators. Although French establishment isn’t required, PDP operators must fulfill a number of requirements, such as operating their IT systems in the EU.
France is implementing a model where third-party service providers are authorised to transmit invoices between the transacting parties. With the mandatory use of the PPF or PDPs for exchanging e-invoices, trading parties cannot exchange invoices between them directly. Therefore, PDPs must be able to receive and send invoices in structured formats, whether the ones supported by the PPF (CII, UBL, or FACTUR-X) or any other required by their clients. Also, to ensure interoperability, PDPs are expected to connect with at least one other PDP. Besides this requirement, it’s stated by the new decree that PDPs must be able to send e-invoices to PDPs chosen by their recipients which implies a complete interoperability between PDPs.
It was previously announced that taxpayers could submit PDF invoices for a transitional period. The new legislation outlines the transitional period as until the end of 2027. During this period PDPs and PPF must be able to convert the PDF into one of the structured formats.
The new legislation also provides information about the content of e-invoices, which has new mandatory fields, and the content of transaction and payment data to be transmitted to the tax authority.
It also announced frequencies and dates of data transmission. Deadlines for transaction and payment data transmission are based on the tax regimes of taxpayers. For example, taxpayers subject to the normal monthly regime should transmit payment data within ten days after the end of the month.
With the aim of having traceability over documents, the lifecycle statuses of the domestic B2B e-invoices are exchanged between the parties and transmitted to the PPF. Lifecycle statuses that are mandatory (“Deposited”, “Rejected”, “Refused” and “Payment Received”) are listed in the new legislation.
Further details regarding the Central Directory, which consists of data to properly identify the recipient of the e-invoice and its platform, are provided within the Order.
PDP operator candidates can apply for registration as of Spring 2023 (precise date still to be confirmed), instead of September 2023 as previously set. From January 2024, a six-month test run is expected to be conducted for enterprises and PDPs before the implementation in July 2024.
Still have questions about France’s upcoming continuous transaction control mandate? Get in touch with our tax experts.
Update: 25 January 2024 by James Brown
There have been a couple of key developments in the space insurance landscape in recent months from an IPT perspective.
In October 2023, a District Court in the Netherlands passed judgment on its view of the compliant IPT treatment of space insurance. Whilst this only affects the Netherlands at present, it is one of the first countries to make a judgment in this context.
In the case, the insurance covered the reduced commercial book value of satellites launched into orbit. From a location of risk perspective, the court deemed that the risk resided in the Netherlands on the basis that this was the location of the establishment of the policyholder.
In light of this finding, the court considered the possible applicability of the IPT exemption that exists in the Netherlands for transport insurance. The court held that this exemption only applied to the coverage up until the point that a satellite was separated from the rocket being used to launch it into orbit. After this point, it viewed that it was no longer being transported as the in-orbit movement was incidental to the actual coverage.
In December 2023, Lloyd’s published its position on the treatment of space insurance, in part following its own work on the subject and in part as a response to the findings of the Dutch court. It confirmed its general agreement with the decision in the Netherlands.
More broadly, it confirmed its view that any separately apportioned insurance of the launch risk should benefit from international goods in transit IPT exemptions that may apply depending on the country. In-orbit risks will not benefit from these exemptions, however.
Nevertheless, if the risk location is a country with a more widely applicable space insurance IPT exemption (e.g. the UK), then that exemption could potentially still apply to in-orbit risks.
Although neither of these developments are legally binding across the European Economic Area, they will inevitably influence market practice.
If you have questions about your approach to the premium taxation of space insurance, speak with an expert.
Update: 27 October 2022 by James Brown
Space insurance and the application of IPT on these policies has been a talking point in recent months. The main question? Location of risk.
This blog considers the background and explores the current state of space insurance.
Space insurance typically provides a broad range of coverage relating to spacecraft, such as satellites and rockets, but also covers the vehicle used for launching the spacecraft.
Although not an exhaustive list, some of the classes of insurance set at European Union (EU) level that we expect to be included are:
Given the different elements of coverage possible, it is important to tax each element appropriately.
For example, the portion of the coverage related to damage to the spacecraft itself (including fire) may result in certain parafiscal charges due on property and fire insurance in some countries.
On the other hand, the portion of the coverage relating to the transport of the spacecraft may benefit from one of the exemptions that exists in many EU jurisdictions for goods in transit insurance.
It is worth noting that the United Kingdom has an IPT exemption relating to contracts of insurance for the operation of spacecraft within certain classes of business (including those classes identified above). The scope includes the operation of the spacecraft during launch, flight, orbit or re-entry, and the operation of the launch vehicle and any business interruption cover. This does not, however, extend to risks relating to spacecraft construction.
There may be multiple risk locations depending on the specific coverages provided on the policy.
When parts of a spacecraft are manufactured and then subsequently assembled, for example, they are considered moveable property and, as such, would be taxable in the property’s location based on EU rules, if contained in a building there.
When transporting spacecraft ahead of launch, then it would be taxable in the location of the establishment of the policyholder to which the insurance contract relates. Similarly, risks covering the launch, ongoing operation of the spacecraft once in orbit, and during the de-commissioning stage should be expected to be taxed in the same way.
From discussions within the market, we are aware that the practice has generally been to treat space policies as wholly exempt from IPT and parafiscal charges. This is rather than taking the approach to look at each element of the policy to see if they should be taxed, and if so, then how should the location of risk rules be applied to determine the correct country or countries.
Despite this practice, the market is presently rethinking its approach to taxing these policies. This is to mitigate the risk of assessments from EU tax authorities claiming for unpaid taxes. Subject to any future legal rulings affecting the market, the likely outcome is that IPT and parafiscal charges are charged as outlined unless there is a specific exemption.
Still trying to figure out how to approach space insurance? Get in touch with our IPT experts today.
Update: 2 March 2023 by Kelly Muniz
Postponement of EFD-REINF Deadline for Events Referring to Withholding IRPF, CSLL, PIS and COFINS
The publishing of Normative Instruction RFB n. 2.133, of 27 February 2023 postpones the deadline of the obligation to submit EFD-REINF (Digital Fiscal Record of Withholdings and Other Fiscal Information) events related to withholding:
This postponement refers to taxpayers who are currently obliged to submit the DIRF (Withholding Income Tax Return) and were required to comply with the EFD-REINF obligation from March 2023.
The obligation to submit the EFD-REINF for these taxpayers will now begin from 8:00 am on 21 September 2023, in relation to taxable events that occur from 1 September 2023.
The postponement is to allow time for taxpayers to carry out adjustments to their computerised systems and for the Brazilian Federal Revenue Agency to finalise the necessary tests to guarantee the consistency of the rules for validating the information captured in the record.
Need to discuss how Brazil’s EFD-REINF changes affect your business? Speak to our tax experts.
Update: 25 October 2022 by Kelly Muniz
Since 2007, the Brazilian government has imprinted high efforts in digitizing the relations between revenue offices and taxpayers, by introducing electronic instruments to ensure taxpayers provide accurate and timely information on the collection of the various existent taxes, duties, charges, and contributions.
One result of such efforts was the creation of the Public Digital Bookkeeping System (Sistema Público de Escrituração Digital) or SPED. This platform is where taxpayers submit fiscal and accounting information using different electronic instruments referred to as SPED modules.
There are significant upcoming changes to one of the modules, the Digital Fiscal Record of Withholdings and Other Fiscal Information (Escrituração Fiscal Digital de Retenções e Outras Informações Fiscais), known as EFD-REINF.
The latest regulatory updates within this module concern steps towards the substitution of other records by the EFD-REINF, with important changes taking place in 2023.
In August 2022 version 2.1.1 of the EFD-REINF layout was introduced, expanding the reach of events covered by the record. The current 1.5.1 version is valid until February 2023 and from March 2023 layout version 2.1.1 must be used.
The main change is the inclusion of the ‘R-4000’ series events. These events cover the registration of withholdings on income tax (IR), Social Contribution on Net Income (CSLL), Social Integration Program (PIS), and Contribution to the Financing of Social Security (COFINS), among other fiscal contributions.
Another relevant change is the removal of the requirement to submit the EFD-REINF ‘without movement’. Previously, only a certain group was permitted for this exemption if they didn’t generate any records to be reported in the respective declaration period but this has now been expanded to all taxpayers in scope of the EFD-REINF.
Earlier this year, RFB Normative Instruction n. 2.096 of 2022 postponed mandatory submission of the EFD-REINF for the fourth and last group of taxpayers: entities that are part of the ‘Public Administration’ and entities classified as ‘International Organisations and Other Extraterritorial Institutions’. Since August 2022 this group is now obliged to comply.
However, the same regulation established that from 1 March 2023 taxpayers currently obliged to submit the DIRF (Withholding Income Tax Return) will be required to comply with the EFD-REINF obligation. This is an extensive list found in article 2 of RFB Normative Instruction n. 1.990 of 2020, which includes individuals and legal entities that have paid or credited income for which Withholding Income Tax (IRRF) has been withheld and certain entities of the Federal Public Administration, among others.
Finally, the annual submission of the DIRF will be abolished regarding events that occur from 1 January 2024, meaning that taxpayers won’t be required to submit it in 2025. Until then, the information declared in the DIRF and EFD-REINF will coexist.
Keeping up with the mosaic of fiscal requirements within the federal, state, and municipal levels in Brazil normally requires engaging the services of an expert or risk incurring high penalties. Modifications to fiscal obligations are implemented regularly in the country, which means companies must ensure readiness to comply.
Still have questions about Brazil’s EFD-REINF? Speak to our tax experts.
Update: 9 July 2018 by Ramón Frias
A complement to eSocial (which covers tax withholdings on wages), EFD-REINF reports withholdings made to individuals and corporations resulting from the application of the income tax and social security taxes (CSLL, INSS COFINS, PIS/PASEP). It also applies to payments received by sport associations and revenues generated by sport events.
EFD-REINF replaces reporting obligations that the Brazilian taxpayers have to comply with under the EFD-Contribucoes.
There are three groups of reports, or “events,” that must be submitted to the tax administration:
The EFD- REINF is being rolled out in three stages.
Events that are incomplete, or reported with errors, will a face fines totaling 3% of the amount involved, with a minimum of $100 Real in the case of legal entities, and half of the above amounts when the taxpayer is an individual. Fines for late reports will range between from $500 Real to $1,500 Real per month or fraction of month.
To learn more about other changes impacting companies operating in Brazil and throughout Latin America, download the Definitive Guide to Error-Free Compliance in Latin America.
There are several countries within the European Union (EU) and European Economic Area (EEA) that have introduced a Fire Brigade Tax (FBT). Fire Brigade Tax is payable on certain premium amounts and usually in addition to Insurance Premium Tax (IPT).
Fire Brigade Tax, or the Fire Brigade Charge (FBC) or Fire Protection Fee (FPF) as it’s known in some territories, is levied on the proportion of the premium that covers fire risks. Fire Brigade Tax is calculated on the fire premium multiplied by the applicable Fire Brigade Tax rate, which seems straightforward but, as is often the case with IPT, some countries have made this calculation quite complex.
This blog summarises the challenges around Fire Brigade Tax calculation and what to consider when calculating Fire Brigade Tax, as well as including country specific rules. For further information about country specific Fire Brigade Tax rules read our blog posts about UK, Portugal and Slovenia.
Solvency II Directive 2009/138/EC doesn’t provide a definition of fire proportion.
The following approach is the most common way to determine the fire proportion of FBT regulations (e.g. Austria).
In Luxembourg the rule is as follows: where the fire and natural forces element cannot be separately identified, the 6% rate applies to 40% of the premium in case of household contents or 50% of the premium in case of non-household contents. This is based on guidance issued by the Luxembourg Tax Office.
In Belgium, the taxable premium for Security Fund for Fire and Explosion charge (Fire INAMI) is dependent on the type of risk covered. The fire proportion is determined by the Law on compulsory healthcare and compensation insurance. For example, for premiums covering terrorism risks the fire proportion is 35%, while for electricity risk it’s 10%. It‘s not possible to deviate from these dictated fire proportions.
In Austria the fire proportion rate can be determined by the insurer based on the covered risks.
An interesting example of Fire Brigade Tax calculation is Finland where the taxable basis of IPT is increased by the amount of calculated Fire Brigade Tax.
As these examples demonstrate, there are many different approaches to the Fire Brigade Tax. Insurers need to stay up-to-date with the local Fire Brigade Tax regulations to correctly calculate the Fire Brigade Tax amount.
When calculating the fire proportion, it’s important to understand that Fire Brigade Tax is not only applicable for fire risks but is due on other risks too. Understanding what risks may trigger Fire Brigade Tax liability requires familiarising ourselves in the mappings of the covered risks.
The immediate answer is Class 8, Fire and Natural Forces. According to Annex I of the Solvency II Directive Class 8, Fire and natural forces covers “All damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to fire, explosion, storm, natural forces other than storm, nuclear energy, land subsidence.”
And from this definition it’s not difficult to figure out what other classes may be impacted by Fire Brigade Tax. So, these are Class 3 Land Vehicles, Class 4 Railway rolling stock, Class 5 Aircraft, Class 6 Ships, Class 7 Goods in Transit and Class 9 Other Damage to Property.
From a risks point of view, Fire Brigade Tax is usually charged on theft, hail and frost damages on top of the fire, storms or land subsidence.
Up-to date knowledge of the Fire Brigade Tax rates is required to calculate Fire Brigade Tax. Plus, you also need to know how the settlement is working, that is where to declare Fire Brigade Tax, what form should be used and the payment method etc.
Staying up to date with Fire Brigade Tax rates is even more important. In our ever-changing world tax rates increase and decrease constantly depending on the climate and politics.
Fire Brigade Tax rates vary across the EU. In Slovenia Fire Brigade Tax rates increased from 5% to 9% as of 1 October 2022. The new rate is applicable to policies that were cashed on or after 1 October 2022.
In some countries there are no separate Fire Brigade Tax regimes as such, but if fire is covered by the premium, then the applicable Insurance Premium Tax rate is higher. Examples include France and Greece. In Greece if the premium covers fire risks a higher IPT rate of 20% is applicable.
There are countries (Iceland), where, broadly speaking, Insurance Premium Tax applies only if fire is covered.
And lastly, there are countries where separate Fire Brigade Tax regimes exist and Fire Brigade Tax is calculated on the fire proportion and the applicable Fire Brigade Tax rate is applied. Examples include Austria, Germany and Luxembourg.
The Fire Brigade Tax rates discussed so far are in territories where the taxable premium rate model is used. However, there are Fire Brigade Tax regimes using other rate models too, like the sum insured. This is the case in Liechtenstein where Fire Brigade Tax is calculated based on the value of the property.
Within the frame of this topic, it’s also worth mentioning that Fire Brigade Tax can be insurer borne, insured borne or both. In Austria for example, 4% of the Fire Brigade Tax is insured borne and is invoiced to the policyholder as an addition to the premium and the other 4% is insurer borne and is deducted from the collected premium.
Completing the Fire Brigade Tax obligation requires submitting the tax declaration and paying the corresponding tax. These two processes can be referred to as settlement.
The variety of Fire Brigade Tax settlement processes is colourful. Differences exist in:
For compliant tax settlement, it’s vital that understanding and interpretation of Insurance Premium Tax regulation is up-to-date and accurate.
Need to learn more about Fire Brigade Tax regimes? Contact Sovos’ IPT expert team who are happy to help you.