Imagine your e-commerce platform offering products that attract entrepreneurs from other EU countries. When goods move from one EU member state to another, this is considered an intra-community supply.
If the customer is not a private individual but a VAT-registered entity, these transactions may be exempt from VAT under certain conditions. What conditions are these, and what is important to know?
We will explore this in this article, where you will find the most crucial VAT-related information for e-shops selling goods to businesses registered for VAT within the EU (known as B2B).
Place of Supply and B2B Sales
In the tax world, “place of supply” refers to the location that determines which state has the right to tax the goods with VAT.
If a business supplies goods to another business within the EU (known as intra-community supply of goods), the place of supply is considered to be where the transport of goods begins. According to this rule, the supplier would typically have to pay VAT in the member state from which the goods are dispatched. However, if certain legal conditions are met, such a transaction may be exempt from VAT on the supplier’s side, meaning no VAT amount is stated on the invoice.
If the supply of goods is exempt from VAT on the supplier’s side, the responsibility for declaring VAT shifts to the recipient in the member state where the transport of goods ends. The recipient must calculate the VAT amount from the price listed on the invoice, excluding VAT, and pay it to the budget of the member state where the transport concludes, according to the tax rate of that state.
The significance of the place of supply is also an important concept in sales to ordinary customers, i.e., B2C sales. However, the place of supply is determined differently for B2C supplies. We have discussed the sale of goods to ordinary customers (B2C) in the blog “E-commerce and VAT: Essential Information for B2C Sales within the EU.“
Basic Obligations Not to Be Underestimated
Not every sale or supply of goods between an e-shop and businesses within the EU can be exempt from VAT. Several legally established conditions must first be met:
- The supplier is a VAT-registered person in the member state where the transport of goods begins.
- The recipient is a VAT-registered person in the member state where the transport of goods ends.
- The recipient informs the supplier of their VAT ID in advance.
- The goods are physically transported from one EU member state to another, and the right to dispose of the goods as owners passes to the recipient.
- The transport of goods is carried out by the supplier, recipient, or a third party on their behalf.
- The business relationship between the supplier and recipient is paid for.
If even one of these conditions is not met, the supply of goods to another EU member state cannot be considered exempt from VAT.
If all required conditions are met, such a transaction is exempt from VAT on the supplier’s side, and the recipient is the person liable for the tax.
In addition to the above conditions, it is also essential that the invoice note, “The supply is exempt from tax.” When issuing an invoice, it is crucial to include the VAT IDs of both the supplier and the recipient.
No VAT Exemption Without Documentation
Documentation is key to VAT exemption. To supply goods to another EU country without VAT, an e-shop must be prepared to prove that all legally established conditions have been met. Without the necessary documents, the VAT exemption cannot be applied.
Essential documents not to be forgotten include:
- invoice,
- contract of goods delivery,
- proof of payment for the goods,
- proof of the physical transport of the goods,
- proof of payment for the transport of the goods.
Tax Declaration
Even if an e-shop avoids VAT when selling goods to a business in another EU member state, it cannot neglect the most basic obligation. Such a supply of goods exempt from VAT must still be reported not only in the tax return but also in the summary report.
We hope this article has helped you better understand the VAT obligations when selling goods to businesses within the EU (B2C). Do not worry, although the topics are somewhat complex, with this information, you will be prepared for what you might face!
Fulfillment by FHB Group has partnered with VGD Slovakia, s.r.o., a leader among Slovak providers of comprehensive tax, legal, and audit services under one roof, to bring important information to businesses to help them achieve their goals and succeed in the competitive world of e-commerce.