Changes in VAT taxation of e-commerce – the VAT special scheme can be used for all kinds of selling to consumers

News, 2/25/2021

A recent government proposal suggests a number of changes to the VAT rules that apply to electronic commerce. It is proposed that the VAT special scheme, currently implemented in international commerce and in the EU’s internal market, be available to sellers of all services to consumers and to the parties that carry out distance sales of goods to consumers. The current VAT rules only provide that the VAT special scheme is available to the sellers of electronically supplied services. In addition, it is proposed that consignments from outside the EU valued below and up to €22 would no longer be exempt from VAT.

These changes are based on EU legislation. According to the government proposal, they would come into force on 1 July 2021. The aim is to simplify the existing VAT obligations and reduce the administrative burden for businesses engaged in cross-border online sales.

The VAT special scheme to expand

Companies can use the VAT special scheme when selling goods and services to consumers in other countries. When reporting and paying VAT under the VAT special scheme, the seller companies avoid separate VAT transactions in every country where consumers buy the seller’s goods. The Tax Administration is the public authority in Finland responsible for the VAT special scheme.

At present, the special scheme only covers the selling of telecommunications, broadcasting and electronic services to consumers in the EU. After the proposed changes are adopted, the scheme can be used more widely. The expanded VAT special scheme consists of three parts: the Union scheme, the non-Union scheme and the import scheme.

Together, the Union and the non-Union schemes will cover all sales of services to consumers in the EU.

The Union scheme will also cover the distance selling of goods to consumers inside the European Union.

In addition, the new import scheme will cover distance sales of goods imported from outside the EU if the value of the consignment is at least €150. Some circumstances require that the seller appoint an intermediary to submit VAT returns and pay the VAT on the seller’s behalf.

As of 1 April 2021, companies can use MyTax to register for the special schemes.

Entry into the special scheme is voluntary. If the seller does not register for the VAT special scheme, the seller will have to register for VAT in each one of the countries where consumers have bought goods or services that the special scheme is designed to cover.

Imports of little value will no longer be exempt from tax

Under the VAT rules currently in force, no VAT is charged on the import transaction if the value of a good arriving from a country outside the EU is less than €22. In accordance with the government proposal, all imports would be subject to VAT. This would make for a level playing field: improve the position of European sellers in relation to their non-EU competitors.

If the new import scheme is implemented by an online store that sells goods, the company as the seller must add VAT to the prices. As a result, the consumer pays the VAT at the same time as they pay the price of the good. This makes the administrative burden lighter for the private individuals who are in the role of importers.

The import scheme may be used if the value of the consignment is no more than €150 and the goods are not subject to excise duty. The party using the scheme can be either the distance seller or a representative appointed by the distance seller. If the distance seller – the seller company’s online store – does not use the import scheme, an alternative way to report and pay VAT is that the transport company that handles the consignment submits a customs declaration on the buyer’s behalf in accordance with the Finnish Customs’ simplified declaration scheme. If the importation to Finland is carried out outside the new import scheme and without the Finnish Customs’ simplified declaration, it will be treated as an import by a non-VAT-registered party. In this case, the VAT must be paid to the Customs. However, business enterprises having a VAT registration must report and pay VAT on their imports to the Tax Administration as a self-assessed tax.

Electronic marketplace platforms to be deemed liable to Finnish taxes

Subject to certain conditions, the party that maintains an electronic marketplace will be held liable to tax due to the selling of goods via an electronic interface, because the marketplace would be considered to have first bought the goods from a supplier and then resold the goods to the consumer. Not only the seller companies described above but also the parties that maintain an electronic marketplace, and their representatives, can begin using either the Union scheme or the new import scheme in order to report and pay VAT on their distance sales of goods.

Distance sales of goods

The proposed legal act will contain definitions of “distance sales in the EU”, and “distance sales of goods originating outside the EU” as concepts. The act will also lay down provisions to determine the place where VAT is imposed on distance sales of goods.

The thresholds currently in effect for different EU countries where distance selling is carried out will be abolished. The country of consumption will be the place for VAT reporting and payment. A standard annual threshold of €10,000 for the entire EU territory would replace the thresholds that at present are different for each country of the EU. The new threshold will set the limit for distance sales and for the sales of certain services.

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