Taxes & Law

Value added tax, sales tax & co. - e-commerce taxes explained in brief

Nadja Müller

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If you are an online retailer and have dealt with the topics of taxes, tax law and tax law, then you know: It's complicated. E-commerce taxes are one of the trickiest and most challenging topics in the field of taxation. However, this article will give you a clear initial overview. Below you will find a brief explanation of e-commerce taxes and an understanding of the key terms VAT and sales tax. This will soon help you navigate your way through the maze of paragraphs much more confidently.

VAT and what else? These e-commerce taxes exist

As an online retailer, you are a self-employed entrepreneur and have to pay taxes. Specifically, you pay income tax, trade tax and VAT.

As with all entrepreneurs, this also applies to you: You have to pay tax on the profit you make from your online business. In return, you can deduct all the expenses you incur for your online store as business expenses. However, trade tax is only levied if your profit exceeds the amount of 24,500 euros. If you pay trade tax, this will be offset against your income tax on a pro rata basis.

On the other hand, you have to pay VAT on your sales. Unlike trade tax and income tax, this is due even if you do not intend to make a profit from your activity.

What is the difference between VAT and sales tax?

For you as an entrepreneur, there is no difference between the two terms. They basically mean the same thing. However, in Germany, the correct term would be VAT, as there is only one VAT law and no Value Added Tax Act. Nevertheless, the term VAT is often used colloquially - also because it is common across the EU to speak of value added tax. In the UK, for example, it is the "Value Added Tax", in France the "Taxe sur la Valeur Ajoutée".

For you as a retailer, it is crucial that it is not you but your end customers who pay the VAT, namely on the gross price of your goods and services. You keep the net proceeds, the gross surcharge goes to the tax office. In this sense, you pass on the sales tax or VAT to the end consumer.

What percentage is the sales tax?

The standard VAT rate is 19% on the net value. The reduced VAT rate is 7% and is levied, for example, on books, brochures, agricultural and forestry products and food (excluding drinks and restaurant sales). However, the tax rates have been or will be reduced until the end of 2022 as part of the Corona Tax Assistance Act.

VAT for retailers: What is subject to VAT, what is VAT-exempt?

As a general rule, you have to pay VAT on all sales from your online sales - unless you make use of the small business regulation. You are a small business owner if you did not generate more than 22,000 euros in sales in the previous calendar year and are not expected to generate more than 50,000 euros in sales in the current calendar year. In this case, you do not have to pay VAT or submit an advance VAT return. However, you also have no input tax deduction at the tax office.

What is input tax deduction?

As an entrepreneur, you can reclaim the VAT incurred on so-called input services (e.g. deliveries to your store) from the tax office. This is called input tax deduction. In principle, you can therefore purchase goods and services from other entrepreneurs free of VAT. Only the VAT on services to consumers must be paid.

If, on the other hand, you are liable for VAT, you will generally also have to pay VAT. Whether and where you have to pay the tax essentially depends on three factors:

  • Are your customers entrepreneurs or consumers? German sales tax applies for consumers.
  • Are your customers based in Germany or in other EU countries? If you sell to consumers in a country within the EU, the delivery is exempt from VAT. If your customers are entrepreneurs in other EU countries, the delivery must be taxed there (mail order regulation).
  • How many sales did you generate in the respective country (so-called delivery threshold)? The mail order regulation does not apply if your sales do not exceed the delivery threshold.

Depending on the constellation, you may have to pay VAT in Germany or the respective country, or the delivery may be tax-free for you.

What do you need to consider with regard to VAT?

Firstly, you have to submit an advance VAT return. Depending on where and to whom you sell and whether you exceed the respective delivery threshold, you have further to-dos. You must:

  • register for sales tax,
  • possibly submit VAT returns in other countries,
  • change your invoices and
  • submit a summary report.

To make things easier for you, you can make use of simplified procedures, such as the one-stop store procedure.

What is One-Stop-Shop?

The One-Stop-Shop procedure (OSS) was introduced to simplify matters. If you are registered for the procedure, you can pay the VAT for all sales to a single office, the Federal Central Tax Office. Here you declare the tax for each quarter in the form of the OSS declaration.

There are special features if you sell your goods via a sales platform such as Amazon or eBay. If you

  • have warehouses in other countries,
  • uses a program such as "Fulfillment by Amazon" or
  • transfer the goods,

other rules apply.

It is particularly important that you optimize your invoicing and accounting so that data interfaces are available, data is integrated automatically and there are no errors. This is the only way to minimize effort and optimally meet tax obligations. fynax is happy to support you in this.

What do you need to consider for e-commerce taxes within the EU?

For online retailers selling goods within the EU, there was a significant change in July 2021: if you sell to private customers within the EU, you must pay VAT in that country if you exceed a certain delivery threshold. This previously varied depending on the country and ranged from 35,000 euros to 100,000 euros.

Since July 2021, a uniform delivery threshold of 10,000 euros per calendar year has applied throughout the EU. If you exceed this threshold for all sales to other EU countries, you must pay VAT in the respective countries.

What needs to be considered for e-commerce in third countries?

If you sell to consumers who are located in a country outside the EU or the EEA, these are so-called export deliveries. These are generally exempt from German VAT. However, you must prove that such an export delivery has taken place. You must also note on your invoice that the delivery is VAT-exempt.

Conclusion

Yes, tax law is complicated. A single tax law is not enough to understand e-commerce taxes. And to handle e-commerce taxes so that you can focus on your core business as an online retailer, you need smart tools and a reliable tax program. Ideally, you should get support from tax consultants who specialize in e-commerce taxes. They know taxes, tax law and tax legislation relating to e-commerce inside out and can help you avoid typical pitfalls. The fynax team will be happy to assist you at any time and advise you on all questions relating to VAT, tax law & co.

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