VAT Special Scheme (Mini One Stop Shop)
When telecommunications services, broadcasting services, and electronically provided services are sold to consumers, the general rule is that the selling is VAT taxable in the country where the consumers are resident. However, from 1 January 2019, small-scale selling to consumers can sometimes be taxed in the seller’s country of residence. If the country of VAT taxation is the consumer's country, the seller can use the VAT special scheme for filing and paying the value-added tax.
If a Finnish business sells telecommunications, broadcasting services, and electronically provided services to consumers who reside in other EU country, and the sales volume for this activity is maximally €10,000 – and the €10,000-threshold had not been exceeded the previous calendar year – the Finnish business is able to simply file and pay Finnish VAT on these sales. However, it is additionally required for this that the Finnish business does not have a fixed establishment in another EU country.
If the Finnish business were to sell these services for more than €10,000 per year, it would either have to be registered for VAT in the consumer's country, or have to start using the VAT Special Scheme. Even in cases where the €10,000-threshold is not exceeded, the Finnish business would be entitled to select the consumer’s country as the country of VAT taxation. If preferred, it could make use of the VAT special scheme in order to deal with its VAT obligations there.
Entry into the Special Scheme is voluntary. Sellers can alternatively become registered for VAT in all the countries where they have sales activities of telecommunications, broadcasting and electronically provided services to consumers.
MyTax has replaced the VAT Special Scheme e-service. Businesses that have entered into the VAT Special Scheme in Finland must use the MyTax e-service for their VAT obligations.
The key terms used in this article have the following meanings:
- consumers refers to all customers or buyers of services who are not businesses
- company refers to all businesses, including corporate entities and self-employed individuals
- broadcasting services refers to TV and radio broadcasting
- telecommunications refer to services of providing customers a telephone and Internet connection
- electronically provided services include listening to music over the Web, and downloading video games or music files into a computer or mobile device
However, sales of goods over the Web are not treated as being an electronically provided service although the consumer might place an order for the goods in a web store.
When is the Special Scheme applicable?
If a company is resident in the EU or outside the EU and it sells telecommunications, broadcasting and electronic services to consumers in the EU, it may opt for the VAT Special Scheme. However, it is available only if the customer is in an EU country where the company has no domicile or fixed establishment.
Finnish companies with small-scale operations
The Special Scheme has not been available for operators of a small business that are not on the VAT register in Finland. Because previously, the selling of telecommunications, broadcasting and electronically provided services were taxed in the buyer’s country, in order to enter the Special Scheme, small businesses had to apply for VAT registration, either in another EU country or in Finland.
Starting 1 January 2019, it is no longer necessary for a Finnish operator of a small business to register for VAT in another EU country for selling telecommunications, broadcasting or electronic services in that country to consumers, because small-scale supplies of this type are now taxed in the seller’s country of residence. In situations where the Finnish seller is a small business that does not have a VAT registration in Finland, the selling is not subject to VAT in Finland, either.
However, small businesses may opt for the Special Scheme also in cases where they do not exceed the threshold of annual sales volume of telecommunications, broadcasting or electronic services. To do so, they must become VAT registered in Finland on application. This way, they also have become liable to pay VAT for sales made in Finland.
Member State of identification, Member State of consumption, Member State of establishment
Member State of identification is the country where the company enters the VAT Special Scheme.
- It is required that companies first enter the Special Scheme in the EU country where they have a domicile.
- If the company has no domicile within the EU territory but is treated as having a fixed establishment in an EU country (or in more than one EU country), it must enter the VAT Special Scheme in such a country.
- If the company neither has a domicile nor a fixed establishment anywhere in the EU, it may select any EU country as its Member State of identification.
Member State of consumption is where the sales of telecommunications, broadcasting or electronic services has taken place for purposes of VAT place-of-supply rules. The Member State of identification passes on the paid VAT and the company-submitted VAT return to the Member States of consumption.
Member State of establishment is an EU country – different from the country being the Member State of identification – where the company that has started using the VAT Special Scheme has a fixed establishment.
Rates of VAT to be applied on different sales transactions
When sales are effected to consumers under the Special Scheme, the VAT rate must be that of the Member State of consumption. For this reason, the company must check the applicable VAT rate on the website of the Member State of consumption.
Registration required before making use of the VAT Special Scheme
The company must submit its registration notice to the Member State of identification before it can start using the VAT Special Scheme. It is filed electronically in MyTax. The Member State of identification informs the company of acceptance or rejection.
Filing quarterly VAT returns
The return period is the calendar quarter. The company must use the e-service offered by the Member State of identification in order to submit VAT returns after each period, by the 20th of the month that follows the end of a calendar quarter. VAT return deadlines do not move forward if the scheduled due date falls on a Saturday, Sunday or a public holiday. The company is required to file a VAT return even for the quarters when it has made no sales to any of its Member States of consumption.
Exceptions - VAT Special Scheme cannot be used for all reporting of VAT taxable supply:
For services sold by the company from its Member State of establishment to its Member State of identification, the VAT return to use is the ordinary national VAT return of the Member State of identification.
Similarly, for services sold inside the Member State of establishment, the VAT return is the national one.
For services sold inside the Member State of identification, the VAT return to use is the national VAT return of the Member State of identification.
For services that are VAT-exempt in the Member State of consumption, no reporting under the VAT Special Scheme is required, and the company must follow the rules in force in that Member State to report such sales.
In the VAT Special Scheme, the Member State of identification transmits the submitted VAT returns to the Member States of consumption and Member States of establishment.
No input VAT must be reported within the VAT Special Scheme, and the company is not allowed to deduct them from the VAT that is payable for the selling. If the company has purchased goods or services for its business in the Member State of consumption, it can ask for the input VAT to be refunded as a VAT refund for foreigners in that Member State.
Nevertheless, if the company is registered for VAT in the Member State of consumption but does not have a fixed establishment there (e.g. it pays VAT due to distance selling), it must file the national VAT return of the Member State of consumption in order to report and get deductions for its input VAT.
If the company has purchased goods or services for its business in the Member State of identification, it must report the input VAT on the national VAT return of that Member State.
VAT payments must be made quarterly
The company must settle the payment to the Member State of identification by the due date of the VAT return. The due date does not move forward if it falls on a Saturday, Sunday or a public holiday.
When Finland is the Member State of identification, the currency of VAT payments is the euro.
However, the company must pay the VAT directly to the Member State of consumption, if the latter has demanded payment e.g. if there has been a delay and VAT is overdue.
The Member State of identification transmits the paid VAT to the Member States of consumption.
Consequences of not filing or paying
If the company has not filed a VAT return or not paid a VAT that has fallen due, it gets an electronic reminder message from the Member State of identification. Reminders are sent out once during a calendar quarter.
The country that monitors the company's VAT returns and payments is the Member State of consumption. It also imposes penalties for negligence, when applicable.
Member States of identification will remove the company from the VAT Special Scheme in e.g. the following circumstances:
- Member State of identification has sent three reminders to a company that has failed to submit the VAT return for three consecutive quarters, and the company has not submitted the missing VAT returns within 10 days after the reminder was sent.
- Member State of identification has sent a reminder for an outstanding VAT for three consecutive quarters, and the company has not paid for each of these calendar quarters within 10 days after the reminder was sent. (However, if the outstanding amount stays below €100 for all the three quarters, the company is not removed from the Special Scheme.)
- Company has filed a zero return for eight consecutive quarters, in other words, has not reported any VAT to any EU country.