EU VAT OSS procedure and ESPO settlement

Service-Tax

From July 1, 2021, revolutionary changes were introduced regarding the settlement of the so-called mail order sale. They are valid not only in our country, but also throughout the European Union. New procedures related to mail order sales will make it easier for taxpayers to settle VAT. How does the ESPO settlement under the VAT OSS procedure look like? Details below.

ESPO - a new form of sales taxation

At the outset, we will define what the ESPO is. It is intra-Community distance sales of goods - the supply of goods shipped or transported from the territory of a Member State other than the territory of the Member State of completion of shipment or transport of goods to the buyer - consumer (or taxpayer not settling intra-Community acquisition of goods).

The above regulations concerning ESPO replace the existing regulations of mail order sale regulated so far in Art. 23 and 24 of the VAT Act.

The analysis of the above definition shows that the catalog of entities that can be buyers in ESPO transactions is the same as in the case of mail order sale.

The ESPO delivery concerns goods that are located in the territory of the EU. They can be produced in the European Union. In addition, the ESPO may cover goods that have been released for free circulation in the EU and are located on its territory and are delivered to EU buyers.

Goods in bonded warehouses must first be released for free circulation in the EU to be subject to the ESPO.

Which transactions are not subject to the ESPO?

The legislator recognized that not all transactions can be accounted for as ESPO. The ESPO does not apply when the subject of delivery are:

  • new means of transport, the purchase of which is accounted for by the buyer as intra-Community acquisition of goods, regardless of whether they are a VAT payer;

  • goods installed or assembled, with or without a trial run - for which the place of delivery is always the country of assembly, where there is no simple assembly involved;

  • goods taxed under the margin scheme.

Example 1.

Jan Kowalski used a modern application that allows you to buy a car in any country of the European Union. The taxpayer purchased a three-month-old car that traveled 2,500 km (demonstration car, registered in Germany). Should the ESPO settlement be used in this case?

In this case, we are dealing with a new means of transport within the meaning of the VAT Act. By a new means of transport pursuant to Art. 2 point 10 lit. and the VAT Act means land vehicles intended for the transport of people or goods, powered by an engine with a cylinder capacity greater than 48 cubic centimeters or with a power greater than 7.2 kilowatts, if they have traveled no more than 6,000 kilometers or no more than more than 6 months. The moment of putting into service of a land vehicle is considered to be the date on which it was first registered for entry into service or on which it was first subject to registration for entry into service on road, whichever date is earlier.

Currently, the legislator does not exclude excise goods from the ESPO.

Settlement of ESPO - place of taxation

The place of delivery at the ESPO is, in principle, the place where the goods are located at the time of completion of shipment or transport to the buyer.

There is of course an exception to the above rule, in which the taxpayer will be able to tax the goods in the seller's country. The taxpayer will have this option if:

  • he has his registered office, or in the absence of such a registered office, has his permanent address or usually resides within the territory of a single Member State only;

  • the goods are dispatched or transported to the territory of a Member State other than that of the Member State in which the seller is established or has his permanent address or usually resides;

  • the sales limit has not been exceeded.

The new limit is only EUR 10,000 (PLN 42,000). It is a net amount, i.e. reduced by Polish tax or value added tax. It is counted in total for all ESPO deliveries. Thus, we add up sales to all European Union countries.

Exceeding the limit and registering for VAT OSS

By reducing the sales limit, the legislator introduced the possibility of using a special VAT settlement procedure, the so-called One Stop Shop (OSS) procedures. Its use is optional. However, if it is chosen, the taxpayer will have to consistently apply it to all supplies of goods or services covered by it, made or provided by it within the EU.

The above procedure is aimed at reducing the administrative obligations related to the need to register for VAT in various EU countries.

Given the above, the taxpayer currently has two options to make the settlement of the ESPO possible:

  • registration for VAT in the country of consumption and tax settlement there,

  • registration for the VAT OSS procedure.

If the VAT OSS procedure is selected, the taxpayer settles the VAT due to the Member States of consumption, i.e. to the Member States where the shipment of goods is completed via the so-called of the Member State in which he is registered and carries out business. Thus, the Member State of identification of the VAT OSS is the country in which the taxpayer has a registered office, and in the absence of such a registered office - the country where the taxpayer has a permanent place of business or the country that the taxpayer chooses as the country of identification. Thus, in the case of taxpayers established in Poland, Poland will be the registration for the VAT OSS.

The choice of the VAT OSS procedure requires notification to the tax authority. In our country, the application should be submitted to the Head of the Second Tax Office Warszawa-Śródmieście. There is no binding deadline for submitting such a notification, but in practice you should not wait for it, as it requires confirmation. Importantly, the tax authority may also refuse to accept the application.

When choosing the VAT OSS procedure, taxpayers will have to keep special records, submit declarations and settle taxes. We submit the declaration for quarterly periods by the 20th day of the month following each subsequent quarter. We make payments for taxes in euro.

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What should the records contain?

As we have already mentioned above, a taxpayer, when choosing the VAT OSS procedure, must keep special records.

It must contain the following information:

  • the indication of the Member State of consumption to which the service is supplied;

  • the type of service provided;

  • the date the service was provided;

  • tax base with an indication of the currency used;

  • any further amounts to increase or decrease the tax base;

  • the VAT rate applied;

  • the amount of VAT due, indicating the currency used;

  • date and amount of payments received;

  • any advance payments received prior to the provision of the service;

  • where an invoice has been issued, the information on the invoice;

  • surname / name of the service recipient, if known to the taxpayer;

  • the information used to determine the place where the customer is established or has his permanent address or usually resides.

The records must be kept in such a way that it can be immediately made available by electronic means. It should be kept for a period of 10 years from the end of the year in which the goods were delivered.

In summary, the VAT OSS procedure is extremely beneficial for taxpayers. It does require registration and record keeping, but it allows you to settle taxes in one country.