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VAT on internet sales or e-commerce

Internet sales (or sales at distance) are different from the popular e-commerce. This is because you do not sell an online service, but goods, just like traditional methods or offline commerce. Goods sold over the Internet are practically identical to what is sold by telephone or fax. That is, since the Internet is still a catalyst for orders, the trade or sale of goods over the Internet is fiscally similar to "distance sales of goods" . For VAT on internet sales purposes, transaction is regulated by Article 68.3,4 and 5 of the VAT Law.

One of the main problems in taxing economic activity over the Internet is determining where the transaction takes place.

The general rule is to consider the place where the server is located by reference. This can be different from the country hosting the website or from which the products are sent.

Sometimes this situation can generate doubts about the place of taxation and, therefore, about which Administration should levy.

In this case we assume that the place of taxation is located in Spain. This is because the company is physically in Spain. In other words, the server is Spanish.

How does VAT on Internet sales tax, depending on the end consumer?

1.- When the buyer is another company:

  1. When the buyer is a business resident in Spain. In this case the sale is subject to VAT.

  2. When the business buyer does not reside in Spain, but does reside within the European Union. In this case the sale is not subject to VAT. The recipient company must account for VAT in its country.

  3. When the business purchaser resides in a country outside the European Union. In this case the sale is not subject to VAT. The recipient company must account for VAT in its own country.

2.- When the purchaser is the final consumer:

  1. Transportation is not carried out by or on behalf of the purchaser.

  2. The receiver is not a VAT payer but a private individual

In the event that we are dealing with a distance sale, the operative will be subject to Spanish VAT. For this reason, the corresponding rate must be included in the invoice.

Location rules for Internet sales to individuals

Internet sales to Spanish customers

Effect of 21% VAT charge. In the case of a private customer, it is not necessary to issue an invoice, a ticket is sufficient.

"For operatives carried out by those who are not entrepreneurs or professionals acting as such, it will not be obligatory to include the recipient's identification details on the invoice for transactions whose counter-party is less than 100 euros, excluding Value Added Tax" Art. 6 of the Regulation governing invoicing obligations.

Internet sales to Community customers

The location rules for this type of delivery of goods are set out in Article 68.4 of the VAT Law, and they do have the following requirements:

  • The supply of goods, the dispatch or transportation starting in the territory of application of the tax shall not be classified as being carried out within the territory of application of the tax where the conditions referred to in points 1, 2 and 3 of the preceding paragraph are met and where the total value of the goods, excluding tax, exceeded the limits stipulated for that purpose in the previous calendar year in that State.

  • The provisions of this paragraph shall in any case apply to supplies carried out during the current year as soon as the amount exceeds the quantitative limits established by the respective Member States of destination.

  • Entrepreneurs whose sales to other Member States have not exceeded the above limits may choose to apply the provisions of this paragraph in the form laid down by regulation. The option shall cover at least two calendar years.

Nevertheless, the earlier mentioned supplies of goods shall not be classified as being carried out within the territory of application of the tax when the goods are subject to excise duty.

Cases when the general rule does not apply

Therefore, the general rule is taxation at source, i.e. in Spain with Spanish VAT. But there are still some cases where the general rule does not apply:

  • The general rule does not apply when sales to the same country exceed the limits established by European regulations for each Member State (for example, for Belgium 35,000 euros), in which case it will be taxed at destination.

  • The general rule does not apply when the seller chooses to pay tax at destination.

The limits for each member country of the EEC are as follows:

Taxation in the other country will be compulsory in those cases, where the above-mentioned sales threshold is exceeded in each country. It will become effective at the moment when the threshold is exceeded.

  • VAT equivalent to a commercial transfer must be recorded when the threshold previously detailed for each country is reached.

  • Once the value exceeds the threshold in the Member State, the supplier is obliged to register in the Member State and settle the VAT, according to Article 68. Three, of the VAT Law will be from the moment that this limit is exceeded. Registry in the consequent EEC country and settle the VAT of the destination country for the sales made, without ending the financial year, might be the case.

  • If the threshold is not exceeded, the supplier can apply VAT according to the Member State, but it is then possible to pay tax in the other Member States of the European Union, even if the aforementioned threshold or limit has not been exceeded.

Therefore, until the end of the year, businesses selling products to private individuals in other EU countries can opt for the distance selling scheme for the following two years.

The earlier mentioned scheme is therefore compulsory, i.e. when a company established in Spain supplies products to private individuals (final consumers) located in another European Union country, it must charge them Spanish VAT (there is generally no exemption) [LIVA, Art. 25], unless it exceeds the limits per country set out in the figure above.

Optional Scheme

However, the optional scheme means that, even if your business does not exceed the limit for a given country, you may choose to benefit from this scheme and charge VAT in that territory. To do so, submit a form 036 in December and tick boxes 901 and 902, specifying the country concerned. In this case, you must apply the system for two years (after this period, the option will be understood to have been revoked, unless you apply for it again) [LIVA, Art. 68.4; Order EHA/1274/2007, Art. 11.2.e].

It should be noted that the voluntary option for the distance selling scheme may be interesting. This happens when the VAT rate in the country of destination is lower than the Spanish rate. For example, in the case of Germany, which has a VAT rate of 19%. Also when you plan to exceed the threshold in the near future (in which case the scheme will be compulsory) and you wish to avoid having to give explanations to customers for the change in rates.

Internet sales to non-EU customers

These will be treated as exports irrespective of where they are made and the amount of sales to each territory. These transactions are exempt from VAT.

Sales made by a Spanish company to a foreign individual (non-resident in the EU), whether via the Internet or not, as they are goods, are exempt under Article 21 of VAT Law 37/1992.

This article states:

The following operations shall be exempt from the tax, under the conditions and with the requirements established by regulation:

  • The supply of goods dispatched or transported outside the Community by the transferor or by a third party acting in the name and on behalf of the transferor.

The above exemption will be subject to compliance with the requirements set out in Article 9 of the Value Added Tax Regulations, approved by Royal Decree 1624/1992, of 29 December, which approves the Value Added Tax Regulations.

  1. Exemptions relating to exports or shipments outside the Community shall be subject to compliance with the requirements set out below:

    1. Supplies of goods exported or sent by the transferor or by a third party acting in the name and on behalf of the transferor.

In these cases the exemption will be conditional on the actual departure of the goods from the territory of the Community, where this is provided for by customs legislation.

For the purposes of justifying the application of the exemption, the transferor must keep at the disposal of the authorities, for the period of limitation of the tax, copies of invoices, contracts or order slips, transport documents, documents proving the departure of the goods and other evidence of the transaction.

In this case it would be essential that the Seller keeps a copy of the SAD of each export. The SAD is the Customs Document proving the exit of the goods.

Conclusions of VAT on Internet sales

In those cases where the buyer is a businessperson, the sale will be taxed in the country of destination.

On the other hand, if the buyer is a private individual, the sale will be taxed at origin, except when sales to the same EU country exceed the thresholds established by European regulations, in which case it will be taxed at destination. And remember that you can also voluntarily choose to be taxed at destination on distance sales.

If you have any questions or comments to add, please leave them below.

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