Your internet sales are doing well, and you have received orders from all over the world. What do you need to know to make sure that your business is complying with the law?
Internet Sales or Electronic Services?.
The European Law makes a distinction between sales or services contracted via the internet and services delivered exclusively through a website.
Services contracted via the internet applies to online shops or consultants with a website in which their products or services can be requested.
If these products can be ordered by other means, such as a phone call or a personal visit to the shop, they are not considered electronic services, strictly speaking.
In this case the internet/website is merely one of a number of means by which the first contact can be made.
When a business operates exclusively through the internet this refers to a service or product purchased with little or no human intervention at all, such as downloading ebooks, multimedia or getting access to a web app or platform.
The rule of location.
In the case of VAT, an important factor that makes the difference is the location where the service is provided. As a general rule, the service is taxed according to the law of the land where the company providing the service is located.
As an example, consider a resident of another EU country who buys a product from a shop located in Spain. He contacts the shop by email and pays for a courier service to pick up and deliver the product that was purchased. This sale is delivered from Spain by the seller. The courier company is considered to be a representative of the buyer who picks up the product (in Spain) on their behalf. If delivery is included in the purchase then the courier company represents the seller and the service is delivered to the buyer’s door in his country.
Sales that are not classified as electronic services are taxed according to the general IVA regulations.
Any sale done to a client in Spain needs to include IVA.
In this respect, clients located in Ceuta, Melilla or the Canary Islands are not considered to be in the VAT zone.
For clients located in other EU Countries, the law distinguishes between the business and the final consumer.
Sales are IVA exempt as long as they are registered as European traders and if the delivery service is paid for by the seller.
Learn more: You can check if your client is VAT registered by clicking here.
If the client is not a company but a final user then IVA has to be added to the invoice unless other exemptions apply.
The IVA to be added is the Spanish IVA (21%). We will comment on the exceptions a bit later.
For clients located outside of Europe, no IVA applies in any case.
Sales to Final Consumers in other EU Countries.
As mentioned before, IVA has to be added to invoices issued to non-business clients (personal consumers) in other EU countries.
The IVA rate that is applied depends on the total annual volume of business with each country.
Initially, Spanish IVA will be applicable, however, if the volume of business goes beyond a certain limit the IVA of the client’s country must be applied. In addition, the Spanish company must be VAT registered in that country and pay the tax there.
The limits vary from approximately 26,000€ in Romania to 100,000€ in Germany.
Not every type of product is subjected to this rule. Ask your accountant for more information.
As explained at the outset, electronic services are those exclusively delivered through the Internet which require little or no human intervention.
1. Access and downloading files.
3. Updating software
4. Access to a web app.
Remote teaching by a tutor via Skype, for example, would not be considered a electronic service.
How are electronic services taxed.
Once again the general rule is that the service is taxed according to the law of the land in which the service is delivered. In this respect, electronic services are considered to be delivered where the computer of the final user is located.
The European law for electronic services dictates that when final users are located in another EU country, the applicable VAT is that of the user’s country. However to avoid excessive paperwork in different countries, from January the 1st 2019, the limit after which the company needs to apply the VAT rate of the country in which the user lives is 10,000€. ( before IVA).
Before reaching that threshold the invoice can contain the Spanish IVA. ( only if the final user is a non-business located in Europe. Both European companies, properly registered as European traders, and any type of client outside Europe should get their invoices without IVA )
Once the threshold is reached the Spanish base business has to registered in the other EU country as a VAT collector and pay the VAT there.
In that case the invoicing software should apply the target IVA rate to invoices issued to that country.