Germany’s liability regulations for online marketplaces
In the past years, thousands of vendors that are selling on marketplaces like Amazon or eBay, many of which are from China are not paying their VAT on the sale of in EU. The EU estimates that member states lose a total in 5 billion euros in e-commerce VAT fraud. The German National Finance Minister has estimated that the loss of sales tax revenue on online marketplaces costs the German state several hundreds of millions in lost revenue every year, and Germany is looking to reduce the losses in VAT revenues.
In December 2017, the European Commission approved a committee proposal for an in-depth reform of the European Union’s value-added tax (VAT) system, as well as a VAT Action Plan for a single EU VAT zone. The purpose of this proposal is to battle against VAT fraud in cross-border sales on the electronical marketplaces. This regulation will come into force in each member state at latest by 2021. The large online marketplaces will ensure that their non-EU traders who sell goods to EU consumers have registered and paid VAT compliantly.
Due to excessive tax losses, the German federal government hopes to narrow the tax gap in advance through special measures before the EU committee proposal becomes effective in 2021. On 1 August 2018, the German government drafted a bill of the Act to prevent VAT losses from E-commerce and introduced further amendments to tax provisions. The draft law has introduced third party liability rules for online marketplaces. According to the new regulations, providers of online marketplaces shall be obliged to record the details of transactions by taxable persons conducted via online marketplace where the transport of the goods either starts or ends within Germany. Secondly, the new regulations will hold providers of online marketplaces liable for unpaid German VAT on the supplies of goods by online sellers if they are not registered for VAT purposes in Germany. The draft law came into force on 1 January 2019. However, a grace period was given until 10th March 2019, that marketplaces can become liable for the unpaid VAT of non-EU and non-EEA online sellers. The respective potential liability for EU/EEA traders will apply from 1 October 2019 onwards.
Who is obligated to register for the German VAT？
Case 1: Companies registered in Germany
The company is registered in Germany and stocks its goods in Germany and sells them to consumers in Germany. If its annual sales exceed the German domestic value-added tax threshold of 17,500 euros, the company needs to register for VAT in Germany.
If the goods are also sold to consumers in other EU countries, then it may need to register for VAT in other EU countries as well.
Case 2: Companies registered in other EU countries
The company is registered in a different EU country, and stores goods in Germany, which are sold to German consumers. If the annual sales exceed the German domestic value-added tax threshold of 17,500 euros, a VAT registration in Germany is required.
OR if the company stores goods in this other EU country and sells them to German-based consumers (non-business), if the annual sales exceed the German distance selling VAT threshold of 100,000 euros, the company needs to register for German VAT. Before the sales exceed the German distance selling threshold, the company can choose to “give up” the distance selling, register for VAT in Germany from beginning and issue invoices with German VAT rates and pay VAT in Germany. When making the above decision, the company needs to consider the different management costs and the tax rate difference between the two countries.
*Distance Selling EU: If you sell your goods from one EU country to customers (non-business) in another EU country directly, you will probably face an obligation to charge and collect local VAT. The EU has created a special regime – distance selling – to simply the administration and burden and to encourage free trade in the EU.
If your sales exceed certain distance selling VAT threshold in each EU country, you will have to register for VAT in that country and you are obliged to report, collect, and pay VAT in that country.
Case 3: Companies registered outside the EU
The company is registered outside the EU and sells goods that stores in Germany to consumers based in Germany. The company needs to register for VAT in Germany. If the company also sells goods to consumers in other EU countries, it may also need to register for VAT separately in other EU countries.
What should I do when receiving a warning letter from Amazon or eBay?
Since January 1, 2019, Germany began to implement the VAT liability policy for e-commerce marketplaces, almost all online traders though marketplaces who did not register for German VAT received a warning letter from Amazon Germany, saying that these online sellers are only allowed to continue to do business on the marketplaces, after they register for German VAT and submit their VAT identification number and the certificate of registration for tax purposes (Bescheinigung nach §22f UStG.). The deadline for non-EU online sellers was 10th March 2019.
Therefore, we suggest that all non-EU online-sellers via online marketplaces selling or storing their goods in Germany should comply with the new German VAT rules and register for German VAT and apply for the certificate of registration for tax purposes on time! Another thing to note is that, online-sellers without a base or a residence in the EU/EEA are required by the Germany tax offices to appoint an authorized agent in Germany when registering for VAT in Germany.
In our next article Ultimate VAT guide for selling though marketplace in Germany part 2 we will explain how to register for VAT, file VAT tax returns and issue VAT invoices in Germany, as well as other useful information about EORI number, import VAT, intrastate report, EU sales list etc. Stay tuned!
Ecovis Beijing German VAT compliance Services
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- Intrastat report
- EC Sales Lists
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Richard Hoffmann is a partner at Ecovis Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining Ecovis. In addition to being a member of the board of Ecovis International, he is Supervisor for the China business of several respected German companies and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: email@example.com
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