E-Commerce, VAT | 12. August 2021

Those who sell many products have to deal with many VAT rates

Merchants selling goods online across the EU need to know the correct VAT rate for each of their products. This is often more complicated than one would think. by

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According to the latest online shopping study conducted by KPMG, some 85% of online shoppers in Germany regularly or occasionally buy clothing on the Internet. Two-thirds of these customers also purchase furniture and household goods – almost as popular as buying computers and electrical appliances on digital platforms. But shoppers are more hesitant when it comes to buying food products: 39% of respondents said they never order groceries online and wouldn’t even consider it. This reluctance is primarily associated with fresh foods: online customers are much more open-minded when it comes to non-perishable goods.

From the merchants’ perspective, the growing tendency to shop online offers great potential. But at the same time, the wide variety of products also increases the complexity of VAT issues – especially for retailers who sell throughout the EU. The main problem is that VAT is not standardized across Europe. Different countries apply different tax rates and there are thousands of exceptions and special regulations. Consequently, the same item can be taxed at a different rate depending on the country.

The complexity of special rules

The vast number of special rules sometimes results in peculiar complications. Lea-Luise Blase, an eClear expert, cites some of the different rules: “There is a reduced VAT rate on food for greyhounds in the Republic of Ireland and in Northern Ireland,” she explains. But this only applies if the dog in question is a racing dog. If it is kept as a house pet, the full VAT is due for the same food. If a racing greyhound is fed with biscuits, the biscuits do not explicitly fall under the reduced tax rate.

Here are some cross-border examples. In Italy, the VAT on whole onions is 4%; dried or chopped onions are taxed at 10%. Portugal handles the same products differently. Fresh, whole onions are taxed at 6%, dried and chopped ones at 23%. Ireland applies a reduced VAT rate on bicycle helmets for children up to age 10, Luxembourg applies a reduced rate on helmets for children up to age 13.

The jungle of rules and regulations makes it almost impossible for online retailers to maintain a clear overview. At the same time, they are liable if they fail to collect and pay the correct amount of VAT – even if this happens by accident. Merchants must therefore be familiar with the VAT rates for all products they sell and for all EU Member States to which the goods are shipped. On the other hand, keeping track of the correct VAT rates isn’t necessary when the eClear VATRules database is integrated into their online platform.

A database containing all VAT rates in EU countries

The VATRules database contains over one million tax codes for all EU 27 plus the UK and takes into account some 300,000 exemptions. eClear continuously synchronizes the database with applicable EU Directives. And to ensure that all EU exemptions, reductions, VAT and customs regulations are accurately matched, eClear uses a highly precise customs code. While EU Intrastat declarations currently require an 8-digit code, eClear works with a much more differentiated 14-digit code.

This code serves as a basis to ensure the eClear Tax Engine assigns the correct VAT to each product for each EU state – and to automatically adjust the rate as soon as a tax regulation changes.

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