Changes in the VAT settlement in online commerce

The EU e-commerce package, which includes the EU Directives 2019/1995 and 2017/2455, forces changes to the VAT regulations in Member States as part of online sales. The purpose of such a change is a weaker position on the foreign market of EU countries as compared to third countries outside the European Union. This situation resulted in avoidance of VAT on goods purchased from other countries, such as China. More on the changes in the article below.

Intra-Community Distance Sales of Goods (ESPO)

Due to the new regulations, which have been in force since the beginning of July, products purchased, for example, from China will be more expensive than before. The internal market of the European Union will be more competitive and thus less dependent on products from countries outside the EU.

According to statutory clarifications, intra-Community distance sales of goods is the delivery of goods that are dispatched or transported by or on behalf of the supplier. On the basis of changes in intra-community sales of goods, the place of delivery of the goods is the Member State where dispatch or transport of the goods from the buyer ends.

The rule regarding the place of taxation has not changed, however, it is important to change the threshold determining the place of taxation for intra-Community sales of goods to the amount of EUR 10,000 (PLN 42,000). Below this threshold, transactions will be taxed in the Member State where the taxpayer supplies the services. For example, if the goods are shipped from Poland by a taxpayer to whom the indicated threshold applies, the ESPO will be taxed in Poland.

The taxpayer will have the option of being taxed in the country of consumption, but if the threshold is exceeded, the transactions will always be taxed in the country of consumption. A taxpayer who has not exceeded the sales threshold of PLN 42,000 may choose to tax the ESPO.

Example 1.

The entrepreneur has a registered office in Poland and a permanent place of business in the Czech Republic. It sells goods to consumers in France and Italy through its website (online store). They are shipped to consumers from warehouses located in Poland and the Czech Republic. The total value of sales (excluding tax) to buyers does not exceed PLN 42,000. In this situation, the entrepreneur has a seat in Poland and a permanent place of business in the Czech Republic and the goods are shipped from these two countries, so the place of delivery of the goods is respectively France and Italy (the place where the goods are located at the time of completion of their shipment or transport to buyer). The PLN 42,000 threshold will not apply as in this case the goods are shipped from two Member States. A trader can choose to register for VAT in all of these Member States and to submit VAT returns and pay VAT directly in each of these Member States. In this case, the trader will be required to issue an invoice in accordance with the invoicing laws in force in France and Italy. (example no. 5 of the tax explanations of the Ministry of Finance).

Distance Selling of Imported Goods (SOTI)

According to the tax explanations of the Ministry of Finance, distance selling of imported goods is the supply of goods that are shipped or transported by or on behalf of the supplier, including when the supplier participates indirectly in the shipment or transport of goods from the territory of a third country to the buyer in the territory of a Member State.

Goods are not considered to be shipped or transported by or on behalf of the supplier if:

• the buyer transports the goods himself or
• the buyer arranges the delivery of the goods with the participation of a third party, and the supplier is not directly or indirectly involved in the organization or assistance in the organization of shipping or transport of the goods.

The place of delivery of the goods depends on the place of release of the goods for free circulation in the European Union and the destination of these goods.

The place of delivery in this case is the place where dispatch or transport of the goods ends. This rule does not apply to works of art, collectors' items, antiques and second-hand goods.

From July 2021, goods with a value of up to EUR 150 that have not been declared to the one-stop shop for import (IOSS) will be allowed to enter the customs procedure for release for free circulation only in the EU Member State which is the destination of the goods.

Example 2.

An entrepreneur based in Poland sells clothing to private persons residing in Germany via an online store. It is registered with IOSS for the import routine. The goods are shipped from its warehouse in China to the home of private individuals. Germany is the country of import. The actual value of the goods (excluding tax) does not exceed EUR 150. In this case, Germany is both the importing country and the ending country for shipment. As the Import Procedure (IOSS) is used, the place of delivery of the goods is Germany. The delivery of goods is subject to VAT in Germany. The import of these goods will be exempt from import VAT (example no. 10 of the Ministry of Finance tax explanations).

Example 3.

An entrepreneur based in Poland sells clothing to private persons residing in Germany via an online store. The trader is not registered in the IOSS system for the import procedure. The goods are shipped from its warehouse in China to the residence of private individuals. Germany is the country of import. The actual value of the goods (excluding tax) does not exceed EUR 150. In such a situation, Germany is the country of import (no possibility of import in another EU MS) and at the same time the end country of shipment. As the Import Procedure (IOSS) is not applied, the place of delivery of the goods is China. Thus, sales are not subject to VAT in the EU. In such a case, the import of these goods will be subject to VAT in the state where their shipment ends, i.e. in Germany (example no. 11 of the tax explanations of the Ministry of Finance).

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No VAT exemptions

The changes as part of the EU e-commerce package will also apply to goods imported to the EU up to EUR 22. Goods of such value could be purchased, for example, on AliExpress or other platforms, where product prices were very low and easily accessible to buyers from the European Union. Such a low price was conditional on the VAT exemption for goods with a price of up to 22 euros. In the current legal system, there is no tax exemption for products of this value, as this was found to be an area for abuse.

The VAT reform means that the goods purchased online, regardless of their value, will be subject to a VAT rate of 23%.

Example 4.

A Polish consumer who wants to buy, for example, a blouse or pants from an online platform such as AliExpress, will be required to pay 23% VAT and its value will be higher by this percentage. So if such a blouse cost PLN 20, now the consumer will pay PLN 24.6.

Legal basis

Act of May 20, 2021 amending the act on tax on goods and services and certain other acts (item 1163)

Tax explanations of the Ministry of Finance regarding the so-called e-commerce VAT package introduced by the Act of May 20, 2021 amending the Act on tax on goods and services and certain other acts.