1 July 2021 (postponed from 1 January 2021 due to the COVID-19 pandemic) marks the entry into force of a new batch of rules related to VAT taxation on intra-Community sale of goods aimed at alleviating the administrative burden on merchants. The law applicable to sales within the EU is the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax which has been transposed into the domestic legislation of Member States, including the Bulgarian VAT Law. The European Union expects that the new system will cut costs for VAT registration and compliance by up to 95% for a total value of EUR 2.3 billion per annum.
1. Determining the place, manner and taxable person for VAT payment and reporting:
Determining the place, manner and taxable person for VAT payment and reporting is governed by the VAT Directive. The rules have been transposed in the Bulgarian VAT law, in particular Arts. 9, 14 and 20. By argument from Art. 9 of the VAT Directive, the taxable person for sales of goods to end user natural persons is always the seller. In these cases the seller is also obligated to pay VAT in accordance with Art. 193 of the Directive.
2. Applicable Bulgarian and European legislation – changes affecting merchants starting 01.07.2021.
1 July 2021 marks the entry into force of considerable changes aimed at alleviating the administrative burden on merchants who perform distance sale of goods within EU borders. In accordance with the requirements of Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods, Member states are to introduce into their domestic legislation the regulations necessary to enact the amendments. The Bulgarian law-makers have done so in the Law for amending and supplementing of the Bulgarian Corporative Tax Law of 27.11.2018.
First and foremost, starting 01.07.2021 merchants will be obligated to register under VAT in only one EU Member State – typically the one where they are based; and registration in another Member state will be entirely up to the merchant.
Secondly, the existing different thresholds for VAT registration in different countries will be removed entirely and replaced with a common, unified threshold of 10 000 EUR calculated on the basis of all intra-Community distance sales on the territory of the entire European Union (with the exception of distance sales within the territory of the state in which the goods in question were posted). Should sales not exceed 10 000 EUR, the companies can make a choice – apply their own ‘home’ tax rate and pay VAT in their country of establishment; or to apply the VAT rate of the consumer’s home country.
Should the aforementioned sales exceed 10 00 0 EUR, the company will have to apply VAT at the rates of the country of destination. The company still has two options – to register under VAT in that state and pay any VAT owed for users in that country there; or to register pursuant to the so-called Union scheme – the one-stop shop (OSS) through the Bulgarian NRA (or the respective authority of the country of establishment) and pay all applicable VAT, regardless of the state to which it is owed, through this portal. The rules for submission and content of the documents related to the Union scheme are laid down in Implementing Regulation (EU) 2020/194.
So far the same system was employed for select number of services; but was expanded to include all intra-Community sales of goods.
3. Changes affecting third-country companies.
It is believed that the new rules represent a serious blow against a number of international online marketplaces (in particular Chinese ones) who are currently exploiting the ‘untaxable’ minimum prices of single unit of goods by declaring prices far lower than the actual ones thus creating unfair competition for their European counterparts. The minimum threshold will be removed starting 1 July 2021 and marketplaces will be able to use their own import one stop shop (IOSS) to more easily declare and pay VAT for goods not exceeding 150 EUR in value.
4. New rules for merchants who maintain platforms for sale of goods by sellers established outside of the EU.
The changes also particularly affect merchants who only maintain online shops for goods coming from third countries (so-called electronic interfaces facilitating the distance sale of goods). Art. 14a of the VAT Directive tackles these persons by introducing the legal fiction that they are the deemed suppliers for VAT if the goods the sales of which is facilitated do not exceed 150 EUR in value; or if the goods are allowed for free sale within the EU or are located within the EU and are delivered to customers in the EU when the underlying seller is not established in the EU. In practice, the EU treats the sale as two independent deliveries – one between the underlying supplier and the electronic interface; and a second one between the electronic interface and the customer.
Secondly, the electronic interfaces are to keep electronic registers for the aforementioned deliveries in accordance with the requirements of Art. 14a, paras. 10 and 11 of the Bulgarian VAT Law, or reporting books pursuant to Art. 14a, para. 12 of the VAT Law if they are not deemed suppliers for said goods. The merchants are to keep the reporting book and the information in the electronic registers for a duration of 10 years.
Obretenovi Law Firm’s team remains at your business’s disposal for any questions related to the new VAT taxation rules within the EU.