In 2018, the total gross turnover in e-commerce was more than € 65 Billion and online shopping won’t stop to grow. Distance selling, e.g. via mail order platforms like Amazon, is naturally also increasing drastically and this lead to VAT duties for sellers.
Antonia KlattLast Updated on 31 January 2022
What is Distance Selling?
Distance Selling means sales that are purchased not face-to-face but mostly sold online via online mail orders services.
As you might know, VAT registrations are necessary either when you set up a business, store your goods in a European warehouse and, and that’s often forgotten, when you reach the annual vat threshold limit of a country when importing goods.
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Online sellers who are selling from country A to country B (both countries are part of the EU) need to make a VAT registration in country B when this country’s VAT threshold limit for distance selling was reached.
Example: Annual limit reached
A French online sellers is only VAT-registered in France and selling his goods to customers all over Europe. Within the first calendar year, the seller exported goods to Germany with a net worth of € 37,000. Previously, there was nothing to worry here, the French VAT ID is enough.
A few years later, after the seller got bigger and bigger, the annual turnover to Germany in September already reached 97,000. The German threshold limit for distance sales used to be € 100,000. The sellers was very likely to reach this threshold and should therefore already have take measures to get a German VAT number. As soon as the net turnover exceeded € 100,000, this additional VAT number was mandatory and to be used for handling VAT.
These rules changed in 2021, as country-specific threshold limits were abolished in favor of an EU-wide one.
Threshold Limit – Distance Selling – VAT
UPDATE: Starting from the 1st of June 2021 a Europe-wide unform delivery treshold of 10,000€ was introduced and replaced the previous country-specific thresholds. This had several consequences for online retailers. The new threshold can be reached by cross-border transactions into several countries, for example by sales from Germany to Spain worth 5,000€, to France worth 5,000€, and to Poland worth 1,000€. In that case, additional VAT registrations are required in all three countries and all sales after the crossing of the threshold are subject to the country-specific VAT rates. This legislation change was introduced with the launch of the One-Stop-Shop.
Preiously, every European country had its own distance selling threshold and once this limit was reached (within a calendar year), the seller had to get an additional VAT number in the country of import.
Due to the fact that the VAT is a tax which has to be paid by the final consumer, countries expected businesses to register with them in order to make these businesses pay the local VAT.
Note: For electronic or digital services to consumers there are no distance selling thresholds.
The main idea behind these VAT registration thresholds was to make selling within the European Economic Area easier for small businesses as selling below those limits won’t affect the VAT duties.
Distance Selling Regulations in Europe
There are many rules and regulations for distance selling in Europe. Knowing the duties is crucial to be on the safe side when it comes to taxation and VAT. The Distance Selling Regulations (DSRs) apply for all distance sales. The purpose of the DSRs is the protection of the consumer in Europe.
List of Regulations
Here is a brief list of regulations that apply for distance selling and what you need to provide to the customer:
- clear information about the goods or services before the purchase (Pre-Purchase Information)
- written information after the products/services were purchased
- the right to cancel orders within 7 days
- the right to have goods or services provided within 30 days after the order was sent (unless otherwise agreed)
- refund in case that products aren’t delivered on the agreed delivery date
- the right to a refund if payment was not authorized
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You must comply with the Consumer Rights Act 2015 and when you get the customer’s personal information, you must also comply with the Data Protection Act 1998. This regulation shall protect the data of the client (business or private individual) and concerns:
- Business Name, Contact Address and E-mail Address
- Telephone Number (state the costs of calling the number if above standard rates)
- Limited Companies
- VAT Number (if applicable)
- Description of Goods/Services
- Terms & Conditions
- Contract period (if applicable)
- Selling price (including taxes)
- Sales Offers
- Delivery Costs
- Payment methods accepted
- Cancellation Information
- Substitute Goods
As many sellers want to offer their products on different channels, here is a brief list of all trading channels that are regarded as channels for distance selling:
- Website & Online Shop
- TV & Telesales
- Online Marketplaces like Amazon
- Online auction platforms like eBay
Distance Selling exceptions for B2C and B2B
One of the most important aspects when it comes to Distance Selling is the recipient. B2B and B2C sales are in those terms completely different to handle and there are also different duties that apply.
Distance Selling Exception B2C
Not selling digital services among the limit of 10,000 € in cross-border sales within one calendar year means that the local VAT rate (the VAT rate of your homecountry) applies for those sales.
As soon as you exceed this limit, the VAT rate of the country of import is charged.
Distance Selling Exception B2B
Distance Selling Thresholds don’t apply for B2B sales! So for reaching the threshold limit, exclusively B2C sales have to be considered.
Note: Excisable goods like tobacco and petrol, as well as digital products, are also not relevat for the annual threshold limit.
Find out more in the Distance Selling Directive of the European Commission.