Why non-EU merchants selling on online marketplaces under deemed supplier model are still required to VAT register in EU:

Short read:

The EU’s e-commerce VAT rules, introduced in July 2021, designate online marketplaces as ‘deemed suppliers’ for certain B2C sales, making them responsible for VAT collection. However, non-EU sellers must still register for VAT in the EU due to specific obligations.

While the marketplace handles VAT on B2C sales, non-EU merchants are required to register because their deemed B2B supply to the marketplace is subject to VAT reporting. This obligation arises when goods are stored and shipped from an EU country. Even though the deemed B2B transaction is zero-rated, EU VAT laws mandate registration, invoicing, and reporting.

Additionally, VAT registration allows sellers to reclaim input tax on eligible business expenses. This article highlights why non-EU merchants selling via online marketplaces must remain VAT-compliant under the EU’s deemed supplier model.

Long read:

Since July 2021, the EU’s new e-commerce VAT rules make online marketplaces the ‘deemed supplier’ in certain B2C sales, meaning they handle VAT obligations for suppliers. However, many merchants may not realise that this does not fully exempt them from VAT registration and filing requirements in the EU. This article explains why these obligations still apply.

Essence of the Deemed Supplier Provision

The ‘deemed supplier’ provision is regulated by art. 14a of the Council Directive 2006/112/EC (‘EU VAT Directive’) and it stipulates that a taxable person who facilitates certain B2C supplies of goods via an electronic interface (e.g. online marketplaces, platforms, portals or similar means) is deemed – however only for VAT purposes – to have received and supplied the goods himself.

This means that a single commercial B2C supply of the goods from the supplier selling goods via an electronic interface (the so-called ‘underlying supplier’) to non-taxable person (e.g. private individual) is split – however only for VAT purposes – into two deemed supplies:

• Supply 1: supply from the underlying supplier to the online marketplace – this is a deemed B2B supply, which the deemed supplier provisions in question considers as a supply without transport and exempt from VAT (with the right to deduct input tax); and
• Supply 2: supply from the online marketplace (= deemed supplier) to the final customer – this is a deemed B2C supply, which in accordance with the deemed supplier provisions is treated as a supply to which the dispatch or transport of the goods is ascribed, and which the online marketplace becomes responsible for accounting for the VAT on.

Supplies covered by deemed supplier provisions

The online marketplace becomes the deemed supplier only when it facilitates the following types of B2C supplies:

1. Distance sales of imported into the EU ‘low value goods’ (goods in consignment of an intrinsic value up to EUR 150); and
2. B2C sales of goods within the EU which include:

• Domestic sales (shipped and delivered within the same EU country).
• Intra-EU distance sales (shipped from one EU country to another).

Note: The deemed supplier rules apply here only if the original seller is based outside the EU.

Reasons why underlying suppliers need to VAT register in the EU

Under the deemed supplier rules, the online marketplace handles VAT obligations, such as charging and remitting VAT on B2C sales. However, the original supplier still has VAT responsibilities, mainly invoicing and reporting, because EU VAT law treats their transaction with the marketplace as a deemed B2B sale.

It is the case when goods are fulfilled from a stock located in an EU country and delivered to the end buyer within the Community (i.e. the 2^nd category of supplies covered by the deemed supplier provisions, which we have set out in the previous subtitle above), which creates a VAT registration obligation for non-EU based underlying suppliers and the reasons for this are as follows:

• The deemed B2B supply between the underlying supplier and the online marketplace is considered by the deemed supplier rules as a supply without transport;
• The EU VAT place of supply rules for supplies of goods without transport make the deemed B2B supply in question subject to VAT in the EU country, in which the goods are located at the time when the supply takes place, i.e. the place of supply of the deemed B2B supply of the underlying supplier to the online marketplace is in the EU country, from which the goods are picked up from the stock/fulfilled;
• Albeit the deemed B2B supply is subject to 0% VAT (exemption with the right to deduct input tax), the EU VAT legislation does not foresee any suspension of the obligation to VAT register on account of carrying out these specific types of transactions by the underlying suppliers. Also, the standard VAT invoicing and VAT return reporting obligations are in place in respect of such types of transactions.
• Consequently, non-EU established merchants, whose B2C sales fall under the online marketplace deemed suppler rules, are still required to VAT register in the EU Member State/-s, from which their goods are going to be fulfilled/dispatched.

There are naturally a number of other reasons (types of transactions), which may make non-EU (as well as the EU) traders selling their goods via online marketplaces liable to register for VAT in certain EU countries – e.g. having its stock transferred between various fulfilment warehouses located in the EU, sales of goods from an EU stock to customers outside the EU (exports), intra-Community acquisitions of the merchandise from one EU country to a stock located in another EU country – however the aim of this article was to bring some more awareness to non-EU based sellers of their EU VAT registration and VAT compliance obligations arising from these ‘not that new anymore’ EU VAT e-commerce provisions concerning the above-described deemed supplier model.

On a final note, a local EU VAT registration enables the trader to deduct within the local VAT returns qualifying input tax incurred on purchases made in the country of the VAT registration (insofar as the goods an services are used for the purposes of the taxed transactions of the trader and subject to all standard national input tax deduction rules and requirements, possession of valid purchase VAT invoices etc.).