General principle: VAT is due in the country from which the delivery begins
If you deliver goods from an EU country to private customers anywhere in Europe, the VAT law of the country in which the transport of the goods begins generally applies. This means that such sales are generally subject to the VAT of the country of departure.
Exception: Under certain conditions, VAT is due in the destination country
However, there is an important exception to the general principle. The so-called mail order rule states that VAT from the sale of the goods must be paid in the country of destination if all of the following conditions are met:
- The item sold (delivered) is an object
- The item is transported by the merchant. This is the case when the item is transported personally or by an employee, or by contracting a transport company
- The item arrives in the destination country located within the EU
- The recipient is a private individual, i.e., not a business enterprise
- The so-called delivery threshold in the country of destination is exceeded or the merchant voluntarily submits to VAT in the EU country of destination
If these conditions are met, the mail order rule applies, which states that VAT is payable in the destination country.
Example: Aunt Heidi from Austria orders a T-shirt from Walanda, a German online fashion shop in Munich. Walanda sends the T-shirt from its German warehouse via express delivery to Aunt Heidi’s home in Austria.
Due to the application of the mail order regulation, Walanda has been registered for VAT in Austria for some time and regularly submits VAT returns there. The sale of the T-shirt to Aunt Heidi is subject to the 20% VAT in Austria, which Walanda declares and pays to the Austrian tax authorities.
It is important in this case that the seller places the transport order (or handles the transport personally). If, on the other hand, the customer places the transport order or picks up the goods from the retailer personally, the sale of goods does not fall under the mail order regulation. In these cases, the VAT law of the EU Member State in which the goods are located at the time of collection by the customer or at the time of the start of transport applies. This will not change in the future.
Example: Aunt Heidi from Austria orders a T-shirt from Walanda, a German online fashion shop in Munich. Since Aunt Heidi is planning to spend a long weekend in Munich, she chooses the ‘Shop & Collect’ option, where she can pick up the T-shirt at the store in downtown Munich.
Because the T-shirt sold to Aunt Heidi is being picked up from the store, Walanda is subject to the 19% German VAT and is required to pay the corresponding amount to the Munich tax office.
The mail-order rule will only apply until June 30, 2021, when a new VAT regulation comes into effect. The delivery thresholds, which will also remain in effect until June 30, 2021, are explained in more detail in the following section.
Delivery thresholds and mail order rule: Under the current regulation, VAT is due in the country of destination above certain sales limits
The principle that the VAT on goods supplied from one EU country to private customers in another EU country is payable where the delivery begins (country of departure) only applies until certain sales limits are exceeded. These sales limits are called delivery thresholds.
The level of delivery thresholds is determined by the individual EU Member States. According to the rules in force until June 30, the merchant must know the respective delivery threshold of the EU member state to which he supplies goods to private customers.
If a merchant exceeds the delivery threshold set by the respective EU Member State, the place of sales taxation shifts from the country of departure to the country in which the goods arrive and the mail order rule applies.
Delivery threshold (EUR)
|Bulgaria (BG)||70,000 BGN (approx. 35,000)|
|Denmark (DK)||280,000 DKK (approx. 38,000)|
|Croatia (HR)||270,000 HRK (approx. 36,000)|
|Poland (PL)||160,000 PLN (approx. 37,000)|
|Romania (RO)||118,000 RON (approx. 26,000)|
|Sweden (SE)||320,000 SEK (approx. 33,000)|
|Czech Republic (CZ)||1,140,000 CZK (approx. 42,000)|
Important: Even if the regulations change at mid-year on July 1, 2021, the delivery thresholds will not be halved in 2021. The annual amounts remain in force.
Voluntary opting for sales taxation in the country of destination
Even if the merchant does not exceed the described delivery threshold in the EU country of destination, he has the option of voluntarily opting for VAT in the country of destination and subjecting the sales of goods to the VAT law of the country of destination.
Such an opting for sales taxation in the Member State of destination may make economic sense if the goods are taxed at a lower rate there than in the country of departure and this advantage outweighs the business costs involved in registering for VAT and the associated recurring declaration costs in the other country.
For example, countries such as Denmark (25%), Finland (24%), Greece (24%) and Bulgaria (27%) have, in some cases, a significantly higher standard VAT rate than Germany (19%). Voluntarily opting for sales taxation in the country of destination is not worthwhile for merchants from Germany who deliver to these countries.
However, looking at the situation from the perspective of a Bulgarian merchant with sales of goods to Germany, the assessment is different. Whether the sale of goods from Bulgaria to Germany is subject to German VAT of 19% or Bulgarian VAT of 27% can make a significant difference – either in the price offered to the customer or in the merchant’s profit margin. Voluntarily opting for taxation in Germany, the country of destination, can therefore pay off here – even without exceeding the delivery threshold of €100,000 applicable in Germany.
Determining whether the delivery threshold has been exceeded
The amount of money received from supplying goods to the respective EU Member State plays a significant role when answering the question of whether and when the respective supply threshold of an EU Member State is exceeded. This is illustrated by the following example. The supply of so-called excisable goods (these are mineral oils, alcohol and alcoholic beverages as well as tobacco products) is not taken into account when determining the delivery threshold. If the merchant sells excisable goods to private individuals in another EU Member State, the place of delivery for VAT purposes always shifts to the country of destination, irrespective of a delivery threshold (i.e. the VAT law of the Member State of destination always applies).
Example: Walanda, the Munich-based online fashion shop, has delivered clothing with a net value of €80,000 to private customers in the Netherlands before Dec. 15, 2020. The company’s sales to the Netherlands were below the country’s delivery threshold (€100,000) in 2019. Up until Dec. 23, 2020, in the course of its Christmas business, Walanda received orders from private customers for sweaters with a net price of €20,000. The shop guarantees deliveries by Christmas day.
After the holiday season and up until the end of 2020, Walanda delivers additional fashion articles worth €5,000 to customers in the Netherlands. With the deliveries carried out before Christmas 2020, Walanda reached the delivery threshold in the Netherlands. All sales transacted before then will be subject to 19% German VAT, which has to be declared and paid to the tax office in Munich.
All subsequent deliveries after Christmas and until the end of 2020 (€5,000) and all deliveries to the Netherlands in 2021 are subject to the 21% VAT rate in the Netherlands. This is because the delivery threshold in the Netherlands was exceeded in 2020.
Delivery threshold exceeded – and then what?
If a merchant, as described in the above example, exceeds the delivery threshold in the country of destination, he must register in that Member State for VAT purposes with the responsible tax authority. Registration usually requires a command of the local language and is therefore often only possible with the support of a local tax advisor. In some cases, this can result in substantial costs.
Following VAT registration, a tax number is assigned to the merchant. This entails recurring VAT declarations, VAT payments and record-keeping obligations, which in most cases also require the involvement of local consultants or similar service providers.
If a merchant decides to issue invoices showing the amount of VAT separately to private customers as well, he must note the necessary information on the invoice depending on the country of destination and his tax registrations. This includes the correct tax rate of the country of destination, the tax number assigned by the tax authority there and, depending on the EU Member State, other mandatory information.
Delivery thresholds and mail order rules will only apply until June 30, 2021, when new VAT regulations will take effect.