On 10 February 2023, the Italian Tax Authority introduced the possibility for 2.4 million professionals and companies to view and download the pre-filled Annual VAT declaration related to transactions carried out in 2022.

Who does this impact?

The service is available for taxpayers defined by the provisions of announcement no. 183994 of 8 July 2021 and announcement no. 9652/2023 of 12 January 2023.

These are taxable residents established in Italy who carry out quarterly VAT payments. Exclusions include those operating in sectors of activity or for which special regimes are provided for VAT purposes, including:

This service is not available for companies established outside of Italy that are registered for VAT in Italy through direct registration or a fiscal representative.

What does it mean for the taxpayers impacted?

The Italian Tax Authority prepared the pre-filled draft thanks to the following data:

How can I view the declaration?

Taxpayers can access this new functionality by entering their credentials in the ‘Invoices and fees’ (‘Fatture e corrispettivi’) portal of the Italian Tax Authority. They must access the section dedicated to pre-filled VAT documents where the new “Annual VAT return” section is present.

Can the pre-filled return be amended?

Pre-filled returns were made available on 15 February. Since then, taxpayers have been allowed to modify the pre-filled draft, integrate it and proceed with the submission.

Additional benefits

Do I have to perform a cross check with the pre-filled Annual VAT Return?

Taxpayers should cross check the data in the pre-filled Annual VAT Return and the data in their management systems and edit the return accordingly before accepting and submitting.

More Questions? Ask our experts

If you have more questions about the pre-filled Italian annual VAT return or need support with tax compliance in Italy talk to our experts.

South Korea has recently approved a tax reform which introduces several measures for 2023, among which is the possibility of issuance of self-billing tax invoices.

This tax reform amends the current VAT law to allow the purchaser to issue invoices for the supply of goods and services.

However, this will only be allowed in specific circumstances, such as when the supplier cannot issue the invoice. The purchaser can claim a deduction for the related input VAT by issuing a self-billing invoice.

Therefore, issuing self-billing invoices for VAT-exempted supplies of goods and services will not be permitted. However, the issuance of self-billing invoices by the purchaser depends on confirmation from a district tax office.

What’s next?

This amendment will enter into force and apply to all supplies of goods and services from 1 July 2023.

This South Korean tax reform will expand the transactional scope of the country’s e-invoice issuance and continuous transaction control (CTC) reporting system (e-tax invoicing), as the transactions in the scope of e-tax invoicing are generally the same as those in the scope of VAT invoicing.

The South Korean E-invoicing System in a Nutshell

Collection of real-time fiscal data is becoming one of the core public finance decision making tools. Transactional data provides a timely and reliable overview of the business sector, enabling governments to rely on analytical data in the decision-making process.

This is what has led many governments to adopt CTC regimes that require taxpayers to transmit their transactional data in real/ near-real time to government services. South Korea was one of the first countries to appreciate the benefits of a CTC regime and mandated reporting of e-invoice data to the government for certain taxpayers as early as 2011.

Mandate scope expanded

The year after the first implementation, the South Korean authorities expanded the mandate scope and the e-invoicing system became mandatory for more taxpayers. 2014 saw another expansion of the CTC mandate to reach its current scope.

The current system requires any business that is a corporate entity or an individual whose aggregate supply value for the immediately preceding tax year is KRW 300,000,000 or more to issue an e-invoice to the recipient of goods or services subject to VAT, as well as to report the invoice data to the government.

The South Korean e-invoicing system mandates the issuance of an e-invoice to the recipient and reporting of this invoice data to the government portal within a day of its issuance. Before e-invoices are transmitted, suppliers must digitally sign them with a PKI electronic signature. E-invoices are reported in an XML format to the National Tax Agency (NTS) Portal. Due to the near-real time reporting time-limit, the South Korean e-invoicing system falls under the category of CTC.

South Korea has implemented a comprehensive e-invoicing system from the beginning and as a result there haven’t been any major changes to the requirements or practices. This is a big relief for taxpayers in South Korea compared to other CTC jurisdictions where there are constant changes.

In addition to the benefits for taxpayers, a considered CTC regime is also less burdensome for the state as the implementation costs of the constant regulatory changes can be significant.

More and more governments are considering the adoption of CTC regimes and should look to South Korea as a success story for this approach which has worked well for both the government and taxpayers.

Northern European Jurisdictions: CTC Update

The European Commission’s VAT in the Digital Age (ViDA) proposal continues to unfold with the latest details published on 8 December 2022. As a result, many EU countries are stepping up their efforts towards digitising tax controls – including mandatory e-invoicing.

While we see different approaches to initiate this transition across Northern Europe, the trend towards continuous transaction controls (CTCs) and e-invoicing mandates has accelerated.

Germany plans for e-invoicing mandate

Recent statements indicate that Germany is taking steps towards a B2B e-invoicing mandate, however, without a centralised reporting or clearance element – at least for now. During a VAT conference on 10 March, the Federal Ministry of Finance announced that a draft paper will be published in a couple of weeks for the introduction of the e-invoicing mandate.

It is worth noting that Germany had previously requested a derogatory decision from the European Commission to implement a mandatory e-invoicing regime, as announced by the Ministry of Finance in November 2022.

Sweden edges towards mandatory B2B e-invoicing

Sweden is another country where it would not be surprising to see an e-invoicing requirement emerge. The Swedish Agency for Digital Government (DIGG) has expressed the desire to implement mandatory e-invoicing in the country.

With the Swedish Tax Agency and the Swedish Companies Registration Office, DIGG has requested the government research the conditions for mandating e-invoicing in B2B and G2B flows, which would be added to the current B2G e-invoicing mandate.

The reasoning behind this request is that if the European Commission’s ViDA proposal is adopted, it will result in mandatory e-invoicing in cross-border flows. Therefore the national system should align for efficiency purposes. DIGG does not believe that alignment will occur voluntarily, but a mandate will be necessary.

Finland supports the ViDA package

In Finland, no mandatory B2B e-invoicing mandate is in place. However, buyers can receive a structured electronic invoice from their suppliers if requested. This regulation has been in effect since April 2020 for all Finnish companies with a turnover exceeding €10,000.

Furthermore, the Finnish government recently demonstrated their support of electronic invoicing by sending a letter to Parliament outlining its benefits. The government sees electronic invoicing as a means of increasing business efficiency and combatting VAT fraud through the ViDA package.

Lithuania introduces Peppol-based e-invoicing platform

Lithuania is laying the groundwork for the broader use of e-invoices. It has announced plans to build a technological solution that complies with the European standard for the transmission of electronic invoices.

The platform is expected to be available free of charge to businesses for at least five years and should be ready by September 2023. Additionally, the platform will meet Peppol Network requirements and comply with Peppol BIS 3.0.

Denmark enables automated e-invoicing via e-bookkeeping systems

Denmark has also been working on digitizing the business processes by implementing a new bookkeeping law. The Danish Business Authority has initiated implementing the Bookkeeping Act’s digital bookkeeping provisions by adopting draft executive orders for standard digital bookkeeping systems and their registration.

As a result, providers of standard digital bookkeeping systems must adapt their systems to the new requirements by 31 October 2023 at the latest. The new provisions stipulate that traditional digital bookkeeping systems must support the automatic sending and receiving of e-invoices in OIOUBL and PEPPOL BIS format.

While Denmark has not announced the final dates, it expects taxpayers to adhere to the digital bookkeeping rules between 2024 and 2026.

Northern Europe Continuous Transaction Controls Update

The recent EU Commission report on the VAT in the Digital Age Initiative indicates that continuous transaction controls (CTCs) will become more prevalent across Europe. The final report suggests introducing an EU-wide CTC e-invoicing system covering both intra-EU and domestic transactions as the best policy option. While Eastern European countries have been at the forefront of local implementations, acting swiftly and introducing CTCs, it’s also worth keeping an eye on some of the developments in Northern Europe.

Germany

Following the 2021 national elections, the new coalition government in Germany  identified  VAT fraud as a policy question. It announced its intention to introduce a nationwide electronic reporting system as soon as possible, which will be used for the creation, checking, and forwarding of invoices. Although there are no details about the nature of the system, discussions are ongoing with stakeholders from the private sector, mainly focusing on the implementation timeline and the government’s role in such a system.

B2G e-invoicing has been mandatory for invoices issued to the federal administration since 2020. The scope was expanded from 1 January 2022 to include state-owned authorities in Baden-Wurttemberg, Hamburg, and Saarland, with the next states joining in 2023 and 2024. Moreover, the IT Planning Council, the Central Body for the digitization of administration in Germany, issued the decision 2022/31  advising all contracting authorities to accept electronic invoices via the PEPPOL network by 1 October 2023 to connect the entire public area in a uniform manner.

Denmark

Denmark is also aiming to introduce new requirements to digitize the business processes of Danish companies. On 19 May 2022, the Danish Parliament passed a new accounting law requiring taxpayers to make their bookings electronically using a digital accounting system. The mandate will take effect gradually between 2024 and 2026, depending on the company’s form and turnover.

While the new accounting law doesn’t introduce any mandatory e-invoicing or CTC obligations, it is envisaged that the digital accounting systems must support continuous registration of the company’s transactions and the automation of administrative processes, including automatic transmission and receipt of e-invoices. The Ministry of Finance has been authorised to adopt rules requiring companies to register purchase and sales transactions with electronic invoices as the documentation of the transactions, which in practice would amount to an e-invoicing mandate.

The Danish Business Authority, Erhvervsstyrelsen, has prepared drafts for three executive orders concerning the new digital bookkeeping requirements. According to draft regulations, digital accounting systems are required to support the automatic sending and receiving of e-invoices in OIOUBL and PEPPOL BIS format. These systems must be able to share the company’s accounting data by generating a standard file, which is the Danish SAF-T Standard recently published by Erhvervsstyrelsen.

The draft regulations will be available for public consultation until 27 October and the requirements are expected to enter into force on 1 January 2023. There will be a conversion period until 1 October 2023 for digital accounting systems to comply with the requirements.

Sweden

Sweden is another country looking at introducing digital reporting requirements. The Swedish Tax Administration, Skatteverket, is considering different ways to ensure the correct collection of VAT while obtaining useful economic data from businesses. The project is still at an early phase, and while such requirements could mean introducing Standard Tax Audit File (SAF-T) requirements or a type of CTC, e-reporting, or e-invoicing, the tax authorities would still strive to implement a smooth system for businesses.

Latvia

The Latvian Ministry of Finance has been working on digitizing invoicing processes for a while. They conducted a public consultation and took into consideration opinions of companies and non-governmental organizations to find out the readiness to start using e-invoices in Latvia.

As a result, the Ministry of Finance prepared a report discussing the current situation and the implementation of e-invoices, and possible technological solutions. The report focuses on different e-invoicing systems, such as post-audit e-invoicing, centralised e-invoicing, and decentralised e-invoicing, comparing the advantages and disadvantages of such systems.

The report favours the PEPPOL BIS standard for the introduction of mandatory e-invoicing in B2B and B2G transactions and proposes the use of e-invoices must be defined as an obligation in Latvian regulations, setting a mandatory requirement for the use of e-invoices to start no later than 2025.

The Latvian government approved the report, and the necessary regulatory acts, hence implementation of technological solutions are expected to take shape in due course.

What’s next?

It’s clear that CTC initiatives are becoming increasingly popular among governments and tax authorities in Europe, with the Northern European countries starting to follow this trend, even if they seem to be acting more cautiously. It will be very interesting to see how and when these CTC projects take shape and be affected by the upcoming results from the EU Commission on the VAT in the Digital Age project.

Take Action

Israel Postpones CTC Rollout

The Israeli Tax Authority (ITA) has postponed the rollout of the continuous transactions controls (CTC) mandate.

The deduction of input tax is allowed with this second postponement, even in the absence of an allocation number, until 4 May 2024. The previous cut-off date was 31 March.

Starting 5 May 2024, businesses engaged in B2B transactions exceeding 25,000 NIS (approx. EUR 6,500) are required to obtain an allocation number assigned by the ITA.

Israel Extends CTC Implementation Timeline

On 23 October 2023, the Israeli Tax Authority (ITA) announced that it had extended the continuous transaction controls (CTC) implementation timeline to offer businesses more time to complete their technological development. According to the announcement, the ITA will allow the deduction of input tax from a tax invoice, even in the absence of an allocation number, until 31 March 2024.

The new Israeli invoicing framework will require businesses engaged in B2B transactions that exceed a specific threshold to obtain an allocation number. The first phase starts on 1 January 2024 for invoices exceeding 25,000 NIS. Businesses must ensure that their invoices include the allocation number to be eligible for input VAT deduction as of this date. In light of this recent announcement, buyers will receive an additional three-month period to comply.

It is important to emphasise that although the ITA has extended the time for input tax deductions, the clearance platform will be fully operational as originally planned from 1 January 2024. From this date, invoice issuers who will request allocation numbers will receive them.

Looking for more information on Israel’s invoicing developments? Find out more.

Israel Announces CTC Implementation Timeline and Guidelines

The Israel Tax Authority has released a set of guidelines encompassing technical details and other relevant information regarding the implementation of the Israeli Invoice model.

The guidelines state the new model will be a phased implementation that begins with a pilot program in 2024. A key objective of this new model is to address and mitigate the long-standing issue of fictitious invoices in Israel.

Israel invoicing model

Under the newly introduced Israeli Invoice model, taxpayers involved in B2B transactions which exceed a specific threshold will be required to obtain an invoice number. This will be done by contacting the designated tax authority service via APIs and sending the invoice information prescribed by the tax authority.

The guidelines define the set of information that must be reported to the tax authority, including:

Once acquired, the invoice number must be included on the tax invoice. Without this number, taxpayers will not be eligible to deduct input VAT. It is important to note that the tax authority reserves the right to not assign the invoice number if there is reasonable suspicion of any legal inconsistencies concerning the invoice.

Buyers can use the invoice number to access invoice details through the tax authority service. This feature is designed to optimise the process of incorporating the invoice into the taxpayer’s accounting system.

Implementation phases

The Israeli Invoice model will be a phased implementation, beginning with a pilot program in January 2024 for invoices exceeding 25,000 NIS (approximately 6,500 euros). During this phase, the tax authority can only reject the request for invoice numbers in cases of technical errors.

As implementation progresses, the threshold will be gradually reduced as follows:

Israel is quickly taking steps towards the introducton of its invoicing system by publishing technical details and its implementation timeline soon after introducing the system formally in February 2023. Taxpayers should now prepare their systems according to the legal and technical guidelines that the tax authority has recently published.

Israel: Progress on Implementing Continuous Transaction Controls (CTCs)

More details have emerged regarding the implementation of the continuous transaction control (CTC) model in Israel, which was announced to be introduced in the country in February 2023.

As we reported earlier, Israel’s government approved the 2023-2024 budget on 24 February 2023, setting the stage for the adoption of the CTC model. Since then, the proposal has gone through the standard legislative process and it has recently received approval from the Finance Committee, with some modifications.

New scope and timeline of CTC system

According to the latest announcement, the modified plan introduces a CTC e-invoice clearance model for invoices exceeding NIS 25,000 (approximately 6,500 Euros) in business-to-business (B2B) transactions. Under this model, invoices must be issued through the tax authority’s system and obtain real-time approval. Taxpayers will not be allowed to use unvalidated invoices for deducting input tax.

The implementation of the CTC e-invoicing model is scheduled to start in January 2024, and by 2028, the threshold will be reduced to NIS 5,000, thus covering smaller amount transactions.

Despite the short implementation timeline, it is important that the authorities publish regulatory and technical specifications in time for taxpayers to prepare their invoicing systems to fully comply with the new requirements by January 2024.

Israel Closer to Introducing Continuous Transaction Control (CTC) in Tax System

This long-awaited move will have significant implications for businesses operating within the country. It is essential to know the changes that may impact your company.

Proposal for e-invoice clearance model

The new plan, prepared by the Ministry of Finance and approved by the government, envisages an e-invoice clearance model for invoices over NIS 5,000 (appx. 1300 Euros) issued between businesses. Under this model, invoices must be issued through a tax authority system and receive real-time approval.

The tax authority system will issue a unique number as proof of clearance for each invoice, which businesses can then use to deduct input VAT. The government has also proposed that the tax authority be entitled to refuse a request to assign a number and not clear the invoice if there is a reasonable doubt that the invoice is not issued legally.

While this plan is an exciting development, it is only the beginning of a long journey towards implementing a CTC model. The above proposal is currently only outlined in a budget document, which will be subject to further readings and approvals before the government can implement it.

Additionally, an amendment to VAT Law and the publication of technical details will be necessary to make it legally and technically enforceable.

Israel on the Road to Continuous Transaction Controls (CTCs)

With the long-lasting problem of fictitious invoices in Israel, a move towards some form of mandatory e-invoice clearance might be the answer. After having been withdrawn once due to failing support, the idea of a continuous transaction control (CTC) model is being revived by the Israeli tax authority. The proposed model, similar to Chile’s e-invoicing system (clearance), would include a direct connection between the tax authority and businesses in real time for each transaction. The proposal, which is currently being reviewed with interested stakeholders, will be presented to the Knesset Finance Committee, with the hope of promoting legislation for implementing the planned reform measures as soon as a new government is formed.

It’s an interesting observation that for years Israel appeared to be heading towards the EU approach of a post-audit system, yet recently they seem to have pivoted and be heading towards the more Latin American style of continuous transaction controls.

Either way, the Israeli tax authorities are now taking firm measures to combat VAT fraud, as to whether they go for a model similar to Chile, or something close to home in India or Turkey, we will have to wait and see.

Note: The Finance Law for 2024 has been officially adopted and published in the Official Gazette on 30 December 2023. Our blog, France: B2B E-Invoicing Mandate Postponed, is promptly updated whenever there are changes to the rollout of the French mandate.

France will implement a mandatory B2B e-invoicing and an e-reporting obligation. Every company operating in France is affected.

Electronic invoicing in France requires using a (partner) dematerialization platform. The already enacted legislation leaves the choice of which platform up to companies.

Should you use the public platform (‘PPF – Portail Public de Facturation’, i.e. Public Invoicing Portal) or a third-party private platform (‘PDP – Plateforme de Dématérialisation Partenaire’, i.e. Partner Dematerialization Platform)? And which organisation registered as a PDP should you opt for?

There is a lot to consider – including the type of invoices, data management, customer/supplier relations, transmission, functionalities, and more – this blog will help you make a decision.

The electronic invoicing process includes formatting, controlling, reporting, routing tracking, transactions, whether between trading parties (domestic B2B e-invoices) or with the PPF (domestic B2B e-invoices, cross-border B2B sales and purchases, B2C sales, payments received on services). In this respect, PDPs are essential.

French legislation allows companies to choose their dematerialization platform for submitting and/or receiving domestic B2B invoices and reporting transactions. A public solution exists, the PPF, alongside which other PDPs position themselves.

What parameters should you consider when choosing a dematerialization platform? What are the conditions for becoming a PDP and when will they be operational?

This blog discusses the elements that enable companies to understand the role of dematerialization platforms in managing electronic invoicing. If you wonder how to choose the right PDP for your organization, read this blog about Choosing the right PDP – 5 Questions to ask Yourself.

1. Understanding the role of dematerialization platforms

The need to use a dematerialization platform is part of the electronic invoicing requirements, which come into force for business-to-business (B2B) transactions with go-live of the mandate.

Electronic invoicing in France: who is affected?

2. PDPs and electronic invoice formats

An electronic invoice must be delivered in a structured format, leaving it to the trading parties and their PDPs to agree on the standard. By default, PDPs must be able to process the three core set formats, UBL, CII, or UNCEFACT, with the obligation for the platforms to produce a legible version of each invoice, or Factur-X hybrid format (XML+PDF/A-3).

PDPs may also offer to process any other structured formats (e.g. EDI formats such as EDIFACT), subject to acceptance by both the buyer and the seller. In both cases, PDPs will have to extract mandatory data from the issued e-invoice and map it into one of the core set formats – and then report them to the PPF within 24 hours of the e-invoice issuance.

The corresponding flows can be exchanged under various communication protocols (EDI, API, etc.)

3. Public platform or PDP?

Using a PDP isn’t mandatory from a legal point of view. However, using a PDP will be necessary for companies who want to exchange invoices in specific formats due to the specificities of the invoice flow (not supported by the PPF).

The role of the public platform

The PPF will be used for the obligatory transmission of invoice data to the tax authorities.

The PPF performs other functions including management of the Central Directory (in which any registered company subject to VAT will be identified), data collection and transmission to the tax authorities, and retention of e-invoices.

The advantages of Partner Dematerialization Platforms (PDPs)

Like the PPF, a Partner Dematerialization Platform (PDP) ensures the submission of invoices and conversion into one of the three core-set formats – CII, UBL or Factur-X.

But, contrary to the PPF, they will allow the exchange of invoices in any EDI format (other than the three core-set formats).

In addition to these mandatory functionalities, they may also offer the following:

4. Conditions to become a PDP

A PDP is a platform registered and authorised by the French tax authorities. The official registration number will be issued based on an application file submitted by an operator. This file will have to document how the regulation requirements (decree and order published in October 2022) are met, particularly the ability to perform the functions expected of a PDP. These requirements are meant to be slightly revisited with a new decree/order to be published beginning of 2024 (more precisely, with the removal of connectivity tests with TA Platform as a PDP Registration Criteria)

In addition to the guarantee provided by this registration (mainly from the point of view of compliance with stringent security rules), what distinguishes a registered platform from a simple dematerialization operator is the possibility of transmitting invoices to other dematerialization platforms (PPF or other PDPs).

This registration is valid for three years and then must be renewed, based on audits to be regularly provided by the PDPs (first audit to be conducted no later than 12 months after the registration entering into force).

The first certified PDPs should be announced in the beginning of 2024 and will be published on the tax authority’s website.

It’s essential to stay on top of your company’s VAT requirements. This requires sound knowledge of the rules and what authorities expect of businesses. This includes dealing with supplies of goods and services outside standard VAT obligations.

VAT exempt supplies of goods and services – what are they?

Some goods and services are exempt from VAT. This depends on the sector and country you are selling within.

If a supply is exempt from VAT, it may be because the EU considers the goods or services as essential. VAT exempt supplies include:

VAT exempt businesses

If your company only sells VAT exempt products or services, your business operates differently. It is a VAT exempt business and:

For example, if a company solely provides education and training services in the UK, the government would consider it an exempt business. The above rules would apply.

Partly exempt businesses

In some circumstances, a business might be partially exempt from VAT. Partial VAT exemption applies to VAT-registered companies that carry out both taxable and VAT exempt supplies of goods or services.

If your business is partially exempt from VAT, you can still reclaim any VAT incurred when producing or acquiring non-VAT exempt goods or services you sell to customers.

Additionally, partially exempt businesses need to keep separate records. These records should cover VAT-exempt sales and provide details on how VAT was calculated for reclamations.

What is the difference between VAT exemption and 0% VAT?

VAT exemption is not the same as 0% VAT. No extra charges are added to the original sales price for either zero-rated or VAT-exempt supplies, but there are a few significant differences.

Unlike VAT-exempt supplies, zero-rated goods and services are part of your taxable turnover. Zero-rated supplies should be recorded in your VAT accounts – whereas, in some countries, businesses might only record non-taxable sales in regular company accounts.

Furthermore, in contrast to VAT exemption, you can reclaim the VAT on any purchases for zero-rated goods or services.

VAT rates on different goods and services

VAT rates and exemptions vary across the world, so we will use the UK as an example to illustrate the concept.

In the UK, most goods and services are subject to a standard VAT rate of 20%. However, some are subject to a reduced VAT rate of 5% or 0%.

VAT rates conditions

These reduced rates may only apply to certain conditions, or in particular circumstances depending on the following:

International trade

You can send most exports to a destination outside the UK with a zero rating if you meet the necessary conditions:

VAT exemptions are always changing. Don’t get caught out. Contact our team for advice on how your business should manage its VAT obligations if it is exempt from VAT.

The EU Commission’s VAT in the Digital Age proposals include a single VAT registration to ease cross-border trade.

Due to enter into force on 1 January 2025, the proposals are part of the commission’s initiative to modernise VAT in the EU. The single VAT registration proposals would mean only registering for VAT once across the EU under a wider number of in-scope transactions, reducing VAT administration costs and time.

B2C implications of the single VAT registration

The One Stop Shop (OSS) is a pan-EU single VAT registration. While optional, it can be used to report and pay the VAT due on Business to Consumer (B2C) distance sales of goods and B2C intra-community supplies of services in all EU Member States.

The scheme has been well-received and implemented by many companies. There are discussions of broadening the scheme to further simplify VAT in the region.

To further modernise the EU VAT system, the Commission has proposed an expansion of the OSS scheme for e-commerce to include:

Implications for online platforms selling into the EU

Despite rumours of altering the Import One Stop Shop (IOSS) threshold, the current EUR 150 consignment threshold for imported B2C sales will remain for the foreseeable future. The scheme will also stay optional for businesses.

However, IOSS will become mandatory for platforms facilitating non-EU distance sales of goods under EUR 150 for low value consignments. The EU will enhance the security of IOSS by granting EU customs authorities access to information about IOSS-registered businesses.

B2B implications of the single VAT registration

Regarding Business to Business (B2B) supplies, the EU Commission wants to harmonise the application of the extended reverse charge in article 194 of the EU VAT Directive. When implemented in the EU Member State, it applies to non-resident suppliers and reduces their obligation to register in a foreign country for VAT purposes.

Currently, only 15 EU Member States apply the article mentioned above – and not all in the same way.

Introduction of the new mandatory B2B reverse charge will be for certain sales of goods and services if transactions meet the following conditions:

Finally, the EU will abolish provisions in the VAT Directive regarding call-off stock arrangements from 31 December 2024. Beyond this date, new stock transfers under those arrangements cannot be affected as the simplification will not be needed. However, goods supplied under pre-existing arrangements can continue with the regime until 31 December 2025.

Are you equipped to tackle ever-evolving regulations?

In the past year, the Greek tax authority published a series of legislative acts introducing new requirements (the QR code and prefilling of VAT returns) and amending existing ones. It’s been more than three years since the rollout of myDATA as a voluntary scheme, but the system is far from complete.

myDATA is a broad and multi-faceted project covering multiple areas of compliance, ranging from e-invoicing to e-accounting and e-bookkeeping. The system, being quite complex, is still largely under development, technically and legislatively, and prescribed deadlines keep receiving push-back from businesses not ready to comply in time.

myDATA Deadlines Postponed

In response to continuous feedback from businesses and accountants the tax authority more than once has relaxed requirements, offered grace periods and imposed no associated penalties so far (except certain petty fines for 2021 related to recapitulative statements).

One of the latest amendments is the second postponement of transmission deadlines for certain, mainly historical, data which ought to have been reported in the past two years. The Ministry of Finance jointly announced a press release with the head of the IAPR and published a Decision amending the myDATA law (L. 1138/2020). The deadlines for transmitting certain data generated in 2021, 2022 and 2023 are postponed, giving businesses more time to collect and transmit data according to the myDATA specifications.

myDATA reporting deadlines 2023

For 2023, the obligations pertain to the transmission of historical data which took place in the last two years. Current data generated in 2023 may be transmitted within certain deadlines in 2024.

myDATA reporting deadlines 2024

For 2024, the obligation pertains to upcoming data which take place in 2024. Current data generated in 2023 may be transmitted within certain deadlines in 2024.

myDATA next steps

The tax authority’s intention with these changes is to provide more time for businesses who haven’t complied with the previous transmission deadlines to report the required data to myDATA. However, starting from January 2024 the tax authority is expecting businesses to comply with the required deadlines without providing a grace period, at least as of yet.

Certain major aspects of the myDATA system have been the center of much discussion among businesses, accountants and the authorities. This includes mandatory reporting of expense data and any penalties relating to 2022 and onwards which are currently left unregulated. However, the tax authority has announced that a decision regarding the penalties will be published in the next months.

Despite how common VAT is, the tax is difficult at the best of times to understand. Knowing who pays VAT – the buyer or the seller – is straightforward, though, if you take the time to learn about the tax or have help.

With this specific blog, we explain who collects VAT and what governments expect of businesses. For questions around the EU VAT eCommerce package read this comprehensive guide.

How VAT works – a quick explanation

VAT is a tax collected as goods and services move through a supply chain. In other words, manufacturers, distributors and retailers collect VAT as an item or service makes its way to a final consumer.

Similar to VAT, GST sees tax authorities levy GST (Goods and Services Tax) on goods and services sold for domestic consumption. Consumers pay GST, and businesses remit it to the government.

Both GST and VAT share characteristics but have different names. How they work depends on the country and local legislation. For example, the EU has specific VAT compliance requirements as our free guide outlines.

Who pays VAT, the buyer or seller?

Let’s start with a seller. Sellers collect VAT by adding the tax to the selling price.

The VAT charged by the seller is ‘output tax’. Sellers report this to the local tax authority on behalf of the buyer. The VAT paid by the buyer is ‘input tax’. The buyer can credit this against the VAT they charge.

In certain scenarios, VAT can be instead reported and remitted by the buyer. This is a ‘reverse charge’.

Differences between Sales Tax and VAT

The main differences between Sales Tax and VAT are who pays tax to the local governments and when.

VAT and Sales Tax occur at different stages in the production chain. As a tax authority, you levy Sales Tax on retail purchases of goods or services. You impose VAT on each step of the production process.

The challenge with Sales Tax is that tax authorities have no record of transactions to verify retailers’ tax payments. However, with VAT, the chain of transactions and credits creates a natural audit trail due to the cross-reporting between businesses.

The government can issue fines if tax authorities detect errors through an audit.

How does VAT work?

Usually, VAT is charged at the same flat rate across the board. This is set by a national government. However, other rates – such as a zero rate – can apply to specific supplies like children’s clothes and food.

Supplies such as financial and property transactions can also be exempt from VAT – in which case, no VAT is chargeable, nor can the related VAT be recovered by businesses.

Local legislation defines whether additional information is required. Simplified and retailer invoices are allowed in some circumstances.

VAT encourages everyone in the production chain to maintain documentation for all transactions, making each subject accountable for their amount of revenue and compliance with tax laws.

This becomes particularly important when a business wants to reclaim VAT, as they will be required to produce evidence that the tax was incurred in the first place.

Responsibilities as a VAT registered business

Businesses will document and report the VAT paid to their suppliers and the VAT collected on their sales. To claim a VAT credit, businesses must keep proof of the VAT incurred, such as purchase invoices and import documents.

Not all businesses may need to register for VAT. Some circumstances may trigger a VAT registration. These include:

In certain circumstances, it’s possible to register for VAT voluntarily, with the main benefit being the ability to recover the input VAT incurred on purchases.

Registered businesses file periodic VAT returns in respect of each prescribed accounting period. The format and frequency may vary from country to country.

Registered businesses also keep VAT records, charge the right amount of VAT to their supplies, submit VAT returns, and pay any VAT due in a timely manner.

What triggers the tax administration requirement?

There are specific triggers that could prompt queries from the tax office. Usually, these are changes in the company’s status – such as a new registration, a de-registration, or structural changes. VAT refund requests also fall into this category.

Due to their structure and business model, certain businesses are naturally subject to audits. Groups commonly selected for scrutiny include large companies, exporters, retailers, and dealers in high-volume goods.

Tax authorities, especially those trading with the European Union, often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters.

Therefore, unusual trading patterns, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office and produce questions.

Finally, another common reason for the tax authorities to request further information from taxpayers is the so-called “cross-check of activities”. In this case, the tax office will contact their counterparts to verify that the information provided is consistent on both sides.

Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit – especially if high amounts of recoverable VAT are at stake. In the case of an audit, the main objective should be a successful and fast resolution to limit any detrimental impact on the business.

Our explanation about who pays VAT, the buyer or the seller, has explained things but do ask our experienced team any extra questions you might have. They are here to help.

Frequently Asked Questions

Is VAT paid by the seller or buyer?

A seller collects VAT from sales and reports it to the local tax authority on behalf of the buyer. A buyer may also end up charging VAT if it is selling its own goods or services.

Does the buyer pay VAT?

Yes, a buyer pays VAT to sellers and if a buyer sells goods or services to its own customer base and meets the threshold for VAT registration, it will charge VAT itself and pay this to the government.

Do sellers pay VAT?

Sellers do pay VAT, as it’s a consumption tax involved in every step of the supply chain.

Who pays VAT, the buyer or seller in the UK?

This depends on the transaction, where the buyer or seller sits in the transaction supply chain, and whether the goods are exempt from VAT.

What is the difference between Sales Tax and VAT?

Sales Tax is different to VAT. The consumer only pays Sales Tax when buying the final product, whereas businesses collect VAT at every stage of production – meaning all purchasers pay VAT.

Do you need help with VAT?

Following the publication of various circulars by the Federal Ministry of Finance in Germany in 2021, rules on the taxation of guarantee commitments were made effective 1 January 2023. This blog explains how this affects insurers and other suppliers.

Scope of the rules for guarantee commitments

The Ministry of Finance published its initial circular in May 2021. This was in response to a Federal Fiscal Court judgment. It concerned a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty.

In these circumstances, the circular confirmed that the guarantee is not an ancillary service to vehicle delivery but is deemed to be an insurance benefit. As such, it would attract IPT instead of VAT – unless the guarantee is considered a full maintenance contract.

The circular did not prompt immediate concern within the insurance sector. Markets outside the motor vehicle industry weren’t concerned either. The presumption was that it was limited to the specific context of the motor vehicle industry.

Matters changed the following month. The Ministry of Finance clarified that the tax principles it outlined in fact applied to all industries. As a result, the scope of these rules became potentially limitless in Germany. All guarantees provided as additional products to goods or services sold are now within the scope of the application of IPT.

The clarification could impact industries like those organisations selling electrical items and household appliances.

Effect on insurers and other suppliers

The effect on traditional insurance companies should be relatively limited as they do not usually provide guarantees as part of the sales of goods and services. There could arguably be a significant impact on other suppliers that do provide such guarantees.

First and foremost, there is a potential increase in the cost of providing the guarantees caused by the application of IPT. Unlike input VAT, a supplier cannot deduct IPT from its taxable income – it must either increase prices to compensate or accept a less favourable profit margin.

Any companies that purchase the guarantees cannot reclaim the IPT either, as they can do with VAT. The standard IPT rate of 19% in Germany is high compared to most European countries. This exacerbates these issues.

There are also practical considerations to bear in mind for suppliers obliged to settle IPT with the tax authority. They are presumably required to be registered for IPT purposes like insurers, although the Ministry of Finance has not formally confirmed this.

Perhaps more difficult is the issue of licensing. The Ministry of Finance circulars focus on taxation, leaving it unclear whether other suppliers are now required to obtain a license to write insurance under German regulatory law.

VAT Registration Threshold of EU Countries

The European Union is a collective but its Member States have their own rules and nuances where VAT is involved. Knowing what rules are at play is essential when trading in the EU, and that’s where Sovos’ EU VAT Buster comes in.

Each Member State has its VAT threshold for sales. Though, collectively, things changed when the EU VAT Reform came into force. Bookmark this blog so you always have the key facts available when dealing with EU VAT.

What is the VAT registration threshold for EU countries?

For intra-EU B2C supplies, the VAT registration threshold in the EU changed on 1 July 2021. The EU introduced a new lower threshold of €10,000 for businesses established in the region, while a threshold does not govern those outside the region.

For European businesses, that threshold applies annually and is related to all sales in the EU. There is no revenue threshold for non-European companies, and they must be VAT registered in all Member States they sell within.

For other activities, many EU Member States have domestic supplies for established companies, whereas in most instances non-established companies do not benefit from any threshold.

The table below highlights a selection of EU Member States and the VAT number format for the country.

VAT by Country EU

The below table shows VAT details for several countries. The VAT rates were last updated on 17 February 2023 and include the main reduced rates (countries may also have zero rates – read our blog to better understand how VAT works between European countries).

Common terms: Explained

EU VAT is a vast topic, especially considering each country within the union has its own nuances. As such, many questions are asked of us regarding it. Here are some of the most common phrases you may encounter, as well as some frequently asked questions – and the answers.

VAT Destination Principle

The Destination Principle is a concept which allows for VAT to be retained by the country where the taxed product is being consumed. It’s applied to the Goods and Services Tax in India, and on many EU supplies.

VAT Origin Principle

The VAT Origin Principle is a concept which requires that the applicable VAT rate for a transaction is determined by the Member State where the seller is based.

Union OSS

The Union OSS (One Stop Shop) is a scheme for intra-EU business-to-consumer supplies of goods and services. It was introduced in July 2021.

Non-Union OSS

The Non-Union OSS (One Stop Shop) is a scheme for companies that are not established in the EU. It allows them to register and pay VAT for all business-to-consumer supplies of services in a single EU Member State. It was extended from the previous Mini One Stop Shop (MOSS) in July 2021.

VAT intermediary

All goods imported into the EU are subject to VAT. Businesses selling imported goods under EUR 150 can utilise IOSS (Import One Stop Shop) to simplify their VAT Compliance. To obtain an IOSS VAT registration, most non-EU companies need to appoint an intermediary – such as Sovos.

Deemed Suppliers

Marketplaces may become the deemed supplier of some business-to-consumer transactions when they cross borders, taking on VAT obligations. This means that a marketplace would gain responsibility for collecting and reporting VAT from the consumer.

VAT thresholds

To stay compliant with tax regulations, companies need to know the varying VAT thresholds of the EU Member States. In July 2021, the EU introduced a universal distance selling threshold of €10,000. For other activities, many EU Member States have domestic supplies for established companies, whereas in most instances non-established companies do not benefit from a threshold.

Cross-border supplies

Cross-border supplies involve goods being transported from one country to another. In some cases, goods may cross multiple borders on the journey from the supplier to the final destination of sale. When dealing with cross-border supplies, you may create a requirement to register for VAT.

Customs charges

There are no customs charges when goods are transported from one EU Member State to another. There are customs charges for goods originating outside the EU. Such charges are generated from customs controls at borders and are dependent on a specific set of rules.

Import duties

In the EU, Import duty is tax payable based on the value of imported goods and can include VAT and customs duties.

Frequently Asked Questions

Which EU country has the highest VAT?

Hungary has the highest standard VAT rate of any European country, sitting at 27%. Croatia, Denmark, and Sweden are joint-second at 25%.

Which EU country has the lowest VAT rate?

Luxembourg has the lowest standard VAT in the EU at 16% for 2023, though this will return to 17% in 2024. No country can charge a standard VAT rate below 15%.

What is the minimum standard rate of VAT applicable in the EU?

No EU Member State can charge under 15% as a standard VAT rate. Luxembourg has the lowest standard rate among the Member States at 16% (albeit temporarily).

Is VAT the same in all EU countries?

Although the European Union has somewhat created a uniform tax protocol, each EU Member State has its own VAT rates.

Do I pay VAT on EU purchases?

If you buy or receive goods for business purposes from another country in the EU, you must pay VAT on the transaction at the rate dictated by the type and place of supply.

What is EU VAT threshold?

Businesses need to know the unique VAT threshold of the EU Member States. As of July 2021, the VAT threshold for distance selling in countries in the EU is €10,000. For other activities, many Member States have domestic supplies for established companies – though, typically, a threshold is not applicable for non-established companies.

Do I need to register for VAT in the EU?

VAT registration is applicable for non-resident companies to trade in a country, with specific requirements outlined by the EU and individual tax authorities.

Important update: EU Member States today reached political agreement on the ViDA proposal

VAT in the Digital Age: Your Guide

VAT in the Digital Age (ViDA) will change how trade within the EU is conducted and reported forever.

This proposal will ultimately digitize the European VAT system. Details regarding the changes may be complex. This guide will help you:

What is VAT in the Digital Age?

Simply put, ViDA is a proposal that will enable EU countries to use technology to improve the current VAT system and better prevent fraud. When enacted, this will mean significant changes to how you operate in these countries.

As expected, changes of this size and scope are generating a lot of questions among businesses that conduct operations in the EU. Everything from process costs to technology needs is being evaluated as more information on ViDA becomes available.

To assist your business in navigating the uncertainty surrounding VAT in the Digital Age, Sovos has created this HUB, which will serve as your comprehensive resource for everything ViDA. Bookmark this page and stay up to date.

We will be maintaining and updating this HUB frequently as new information and assets become available.

1. Timeline of ViDA

2. VAT in the Digital Age for digital reporting and e-invoicing

3. ViDA for the single VAT registration

4. The platform economy and VAT in the Digital Age

5. How ViDA affects your business

6. How Sovos can help you with ViDA

7. FAQ

Timeline of VAT in the Digital Age

The EU Commission first proposed the VAT in the Digital Age plan for simple taxation in January of 2022. At that point, they issued a call for feedback, which ended in May of 2022. The Commission adopted the proposal on December 8, 2022, and have issued a follow-up feedback period which runs through April, 2023.

eBook: What is VAT in the Digital Age (ViDA)?

This eBook provides you with a high-level overview of all things ViDA.

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VAT in the Digital Age for digital reporting and e-invoicing

Digital Reporting Requirements (DRR) will be introduced for all B2B transactions within the EU. This means that all suppliers and customers will need to submit data to their local tax administration no later than two working days after an invoice is issued. Each tax authority will channel the data to a central database.

ViDA for the single VAT registration

The EU has proposed changes that will reduce the VAT compliance burden for companies that conduct business internationally. This measure will allow them to only register once across all EU countries reducing the burden and administrative issues of having to file in each country independently.

The platform economy and VAT in the Digital Age

The increasing popularity of the platform economy business model has created a new set of challenges for the VAT system. The ‘VAT treatment of the platform economy’ only relates to the supply of certain services via a platform.

How VAT in the Digital Age affects your business?

All invoicing and related processes will be impacted. This includes any accounts payable and accounts receivable processes and the associated information systems that support them. You can read the full Q&A with Christiaan van der Valk on how businesses will be impacted here.

How Sovos can help you with ViDA

ViDA, at its core, is about data. The EU is saying that after the fact tax filings that only provide insight into aggregated data for a month or longer are no longer going to be acceptable. By leveraging technology, tax administrations can now receive authenticated transaction data detailing every sale and purchase straight from companies source systems. Tax is now an always on function, not an afterthought. For more, please speak with one of our experts.

Frequently Asked Questions

How can ViDA best be summarized?

ViDA is the EU Commission’s action plan for fair and simple taxation. It emphasizes how tax authorities can use technology to fight tax fraud and benefit businesses while evaluating whether current VAT rules are appropriate for business in the digital age.

Why was ViDA proposed?

To control costs, protect revenue and shrink the VAT gap which has been a major issue of economic concern for all countries within the EU. The 2022 Report on the VAT Gap released by the European Commission estimates that EU Member States lost €93 billion in Value-Added Tax (VAT) revenues in 2020.

What are the areas covered by ViDA?

ViDA is broken down into three main coverage areas:

VAT reporting obligations and e-invoicing
VAT treatment of the platform economy
Single EU VAT registration

What will it cost to implement ViDA?

KPMG has estimated that the overall savings in administrative cost currently borne by taxpayers is EUR 51 billion over a 10-year period between 2023 and 2032. The total cost of implementation for businesses and national administrations is estimated to be EUR 13.5 billion for the same period.

Will ViDA prevent fraud?

The EU Commission estimates that moving to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years.

How does ViDA help businesses conducting cross-border transactions?

The EU Commission announced that this will build on the already existing ‘VAT One Stop Shop’ model for online shopping companies, ViDA will allow businesses selling to consumers in other member states to register only once for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Estimates show that this move could save businesses, especially SMEs, some €8.7bn in registration and administrative costs over ten years.

eBook: What Is VAT in the Digital Age (ViDA) and How Does it Impact My Business?

This eBook provides you with a high-level overview of all things ViDA.

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Blog: Mandatory e-reporting and e-invoicing for EU Intra-Community Transactions

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Blog: VAT treatment of the platform economy

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ebook

What Is VAT in the Digital Age (ViDA)

and How Does it Impact My Business?

What Is VAT in the Digital Age (ViDA)?

In this eBook

What is ViDA?
Data and the technology impact
How and when is ViDA likely to impact my business?
Where do businesses go from here?

The EU Commission has proposed the VAT in the Digital Age plan for fair and simple taxation. It emphasizes how tax authorities can use technology to fight tax fraud and benefit businesses while evaluating whether current VAT rules are appropriate for business in the digital age.

To help you keep pace with all of the rule changes being proposed and evaluated, Sovos has put together this eBook in conjunction with our regulatory experts. Inside you will learn about the key elements of ViDA, why it’s being proposed and its potential impacts on your business.

This VAT in the Digital Age eBook includes a deeper dive into the technology implications of ViDA and why technology is front and center of the discussion. It also includes a Q&A with world renowned regulatory expert, Christiaan van der Valk who breaks down some of the most frequently asked questions to date.

This eBook is intended to provide you with a high-level overview of all things ViDA. As new developments become available, Sovos will be providing new content and analysis, so please bookmark our content library and check back frequently for updates.

In the meantime, should you have any questions regarding ViDA and your businesses ability to adapt and manage any part of this program, don’t hesitate to contact us and speak with one of our regulatory experts or read our regularly updated guide to VAT in the Digital Age.

View the full eBook

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What is the EU VAT Reform?

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.

Want to learn more about EU VAT?

EU VAT Reform: A Timeline

EU Commission Proposes Major Reforms for EU Customs including Expansion of the IOSS Scheme

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.

EU Customs Data Hub

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.

Expansion of the IOSS Scheme

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.

One year on for the One Stop Shop – the changes and challenges of the new e-commerce VAT scheme

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.

The EU E-Commerce VAT Package – What Have We Learned Nine Months On?

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.

How the EU E-commerce VAT Package has affected businesses

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.

IOSS Four Months On

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.

EU VAT reform and double taxation

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.

Fraudulent IOSS VAT number usage

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.

Issues with particular types of transaction

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.

The EU E-Commerce VAT Package: Lessons Learned Two Months On

Delays and teething problems

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.

Goods import issues

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.

OSS Explained – Explanatory Notes for July 2021 VAT E-Commerce Rules

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.

The OSS scheme:

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).

The IOSS scheme:

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.

Singapore’s new Low Value Goods (LVG) rules came into effect at the beginning of the year. As of 1 January 2023, private consumers in the country must pay 8% GST on goods valued up to SGD 400 imported via air or post from GST-registered suppliers.

Prior to this change , Low Value Goods procured locally from GST-registered businesses were subject to GST. Goods imported overseas via air or post were not. This change treats all goods consumed in Singapore in relation to GST.

For example, a private individual orders an item that costs SGD 390. Additional transportation fees are SGD 20. As the threshold excludes transportation fees, the product’s value is SGD 390. The consumer will have to pay GST on the purchase to the supplier.

Since 1 January 2023, GST is also levied on supplies of imported non-digital services purchased from GST-registered overseas suppliers. As a result, all B2C supplies of imported services – digital or otherwise – that are supplied and received remotely are taxed.

Non-established suppliers – such as electronic marketplace operators and re-deliverers – must register, charge and account for GST where:

Businesses should assess if these changes trigger the need to register for GST and other compliance challenges.

Need help with tax compliance in Singapore?

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.

What is EU VAT reform?

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.

What are the latest EU tax laws and changes?

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.

What is the current EU VAT rate?

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.

What has changed since July 2021?

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.

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.

Do I now have to pay VAT on EU goods?

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.

What is OSS and does it come with new tax regulations?

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.

Get in touch today to understand how ever-changing VAT e-commerce rules in the EU affect your business.

Will VAT change when we leave the EU?

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.

Is the UK still in the EU for VAT purposes?

No, the UK maintains its own VAT rate and tax system. Different rules apply for businesses in Northern Ireland.

Can EU countries change VAT?

Yes, an EU country can change its VAT rate within the guidelines set by the EU VAT Reform.

VAT Determination - Monitoring and Reporting

Ensure data accuracy for VAT reconciliation reports

Prevent errors and incorrect filings with an automated, comprehensive SAP monitoring and reporting process

International businesses with complex, multijurisdictional supply chains need to ensure their VAT determination decisions are right every time.

Monitoring supply chain transactions creates challenges for tax and IT teams attempting to address determination decisions, especially if done manually.

Whilst SAP leads the way in advanced accounting software, conducting analysis and managing corrections accurately within the off-the-shelf SAP system can be complex. Conducting data checks and changes manually is time consuming and error prone, and SAPu2019s limitations make monitoring determination processes across the supply chain challenging.

The simple solution for accurate VAT compliance reports

The Monitoring and Reporting module within our VAT Determination suite simplifies data checking and can help to uncover errors before they become an issue.

Sovos VAT Determination is a flexible, automated suite of SAP modules providing efficient, transparent and correct identification of VAT determination processes across chain transactions for sales and purchases, including VAT ID checks, monitoring and reporting. Sovos VAT Determination u2013 Monitoring and Reporting includes two vital elements: a tool for checking data and finding errors for VAT reconciliation and advanced VAT reports for additional data queries and VAT analytics.u00a0u00a0

Sovos VAT Determination – Monitoring and Reporting module is a certified add-on for SAP

Instantly monitor and verify VAT determination data for VAT reconciliation reports

Simplify data checking and error finding for VAT reconciliation with Sovos

Ensure the accuracy of your data and support the resolution of errors with integrated VAT analytics and Advanced Reports.

Contact our team of experts

VAT Determination - VAT ID Validator

Automate VAT ID validation for effective invoice processing and periodic reporting

Automate VAT ID validation process and save time

Changing suppliers and introducing new companies to supply chains is a common requirement for multijurisdictional businesses. As part of due diligence, VAT ID checks are obligatory, with requirements varying across VAT and GST jurisdictions.

Manually processing customer VAT numbers to ensure they’re legitimate can be incredibly time-consuming and resource intensive. For certain transactions, checking the validity of the VAT identification numbers is a necessary requirement for tax exemption.

Delays or errors in the VAT ID validation process can have a knock-on effect on supply chains, delaying clearance at customs and increasing the risk of financial penalties during an audit, affecting future profitability.

Teams could save valuable time and improve data accuracy by implementing an automated VAT ID validation solution.

Increase compliance with advanced VAT ID check capabilities

Sovos VAT Determination – VAT ID Validator module is an SAP-certified add-on, providing automated VAT ID checks across multiple VAT and GST jurisdictions. It provides qualified retrieval, validation and storage of VAT ID validation results via official centralized authority databases.

The software reduces the manual process of verifying VAT numbers and offers the possibility of automated checking directly from your SAP system. It helps teams establish a best practice approach to increase compliance and achieve accurate, reliable and fully transparent VAT determination decisions for sales invoices as well as being key to the evaluation of purchase invoices.

Sovos VAT Determination is a flexible, automated suite of SAP modules providing efficient, transparent and correct identification of VAT determination processes across chain transactions for sales and purchases, including VAT ID checks, monitoring and reporting. Sovos VAT Determination – VAT ID Validator is one of four add-ons available within the suite.

Sovos VAT ID Validator module is a certified add-on for SAP

Save time with an automated VAT ID validation solution

Simplify VAT ID number verification process for effective invoice processing and reporting with Sovos

Ensure your business complies with the necessary VAT ID number validation requirements with future-proof software for complex transactions in SAP.

Contact our team of experts

Country	Current VAT Rate		VAT Number Format
Country	Standard	Reduced	VAT Number Format
Germany	19%	7	Format: Nine characters. Example: DE 123456789.
Hungary	27%	5, 18	Format: Eight characters. Example: HU 12345678.
Romania	19%	5, 9	Format: From two to 10 characters. Example: RO 12, 123, 1234, 12345, 123456, 1234567, 12345678, 123456789, 1234567890.
Spain	21%	4, 10	ES X12345678, 12345678X, X1234567X Format: Nine characters. Includes one or two alphabetical characters (first or last or first and last).
Switzerland (non-EU)	7.7%	2.5%, 3.7%	Format: Nine characters, ends with MWST/TVA/IVA. Example: CHE 123.456.789 MWST.
United Kingdom (non-EU)	20%	5%	Format: Nine characters. Example: GB 123 4567 89.

Who does this impact?

What does it mean for the taxpayers impacted?

How can I view the declaration?

Can the pre-filled return be amended?

Additional benefits

Do I have to perform a cross check with the pre-filled Annual VAT Return?

More Questions? Ask our experts

What’s next?

The South Korean E-invoicing System in a Nutshell

Mandate scope expanded

Take Action

Northern European Jurisdictions: CTC Update

Germany plans for e-invoicing mandate

Sweden edges towards mandatory B2B e-invoicing

Finland supports the ViDA package

Lithuania introduces Peppol-based e-invoicing platform

Denmark enables automated e-invoicing via e-bookkeeping systems

Northern Europe Continuous Transaction Controls Update

Germany

Denmark

Sweden

Latvia

What’s next?

Take Action

Israel Postpones CTC Rollout

Israel Extends CTC Implementation Timeline

Israel Announces CTC Implementation Timeline and Guidelines

Israel invoicing model

Implementation phases

Israel: Progress on Implementing Continuous Transaction Controls (CTCs)

New scope and timeline of CTC system

Israel Closer to Introducing Continuous Transaction Control (CTC) in Tax System

Proposal for e-invoice clearance model

Israel on the Road to Continuous Transaction Controls (CTCs)

1. Understanding the role of dematerialization platforms

Electronic invoicing in France: who is affected?

2. PDPs and electronic invoice formats

3. Public platform or PDP?

The role of the public platform

The advantages of Partner Dematerialization Platforms (PDPs)

4. Conditions to become a PDP

VAT exempt supplies of goods and services – what are they?

VAT exempt businesses

Partly exempt businesses

What is the difference between VAT exemption and 0% VAT?

VAT rates on different goods and services

VAT rates conditions

International trade

B2C implications of the single VAT registration

Implications for online platforms selling into the EU

B2B implications of the single VAT registration

Are you equipped to tackle ever-evolving regulations?

myDATA Deadlines Postponed

myDATA reporting deadlines 2023

myDATA reporting deadlines 2024

myDATA next steps

How VAT works – a quick explanation

Who pays VAT, the buyer or seller?

Differences between Sales Tax and VAT

How does VAT work?

Responsibilities as a VAT registered business

What triggers the tax administration requirement?

Frequently Asked Questions

Is VAT paid by the seller or buyer?

Does the buyer pay VAT?

Do sellers pay VAT?

Who pays VAT, the buyer or seller in the UK?

What is the difference between Sales Tax and VAT?

Do you need help with VAT?

Scope of the rules for guarantee commitments

Effect on insurers and other suppliers

VAT Registration Threshold of EU Countries

What is the VAT registration threshold for EU countries?

VAT by Country EU

Common terms: Explained

VAT Destination Principle

VAT Origin Principle

Union OSS

Non-Union OSS

VAT intermediary