Usually, when goods are sold to VAT registered business customers in other EU countries, these goods are zero rated for VAT in the supplier’s country, as long as the goods are dispatched from the country of supply and the customer accounts for the VAT due on the goods as acquisition tax (calculated at the relevant rate in the country of receipt).
Distance selling is the term used to describe when goods are sold from a supplier in one EU member state to a customer in another member state who is not registered for VAT. Non-VAT registered customers are commonly known as ‘non-taxable persons’ and might include private individuals, small businesses, or charities and public bodies. Sales affected will include mail order, telesales or goods ordered from online websites.
Sales to these customers will be subject to VAT at the rate applicable in the supplier’s country, until the distance selling threshold is breached in the country of destination.
Each EU member state sets an annual distance selling threshold, which can be either €35,000 or €100,000 per calendar year. For countries that don’t use the Euro, the equivalent values in the local currency applies. For example, the UK distance selling threshold is £70,000, which equates to €100,000.
VAT registered businesses are required to keep a record of all sales made over a calendar year to non-taxable persons in each EU member state, to ensure that they remain aware of when they might breach the distance selling threshold. Once the threshold is breached in an EU state, the supplier is required to register and account for VAT to the local tax authorities on all future sales of goods in that country. In addition, businesses can also voluntarily register and account for VAT in another EU member state if the wish to, prior to exceeding the distance selling threshold.
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