VAT on Sales Facilitated By Online Marketplaces - LOVAT Guest Article



Nov 3rd, 2021

Taxes. A topic that inspires fear in the minds of many but it doesn't have to be that way. Our friends LOVAT have created this fantastic guest article demystifying the topic of taxes that are applicable in different jurisdictions when it comes to marketplaces.

LOVAT are tax experts who can help ensure you keep on top of your tax obligations, regardless of the different markets you may operate in. LOVAT allows you to check VAT thresholds and file VAT returns with confidence, giving you peace of mind, knowing that all your tax affairs are fully compliant.

Online Marketplace Platforms (OMPs) and Taxes

Australia first adopted marketplace VAT collection rules in 2017 and New Zealand followed marketplace GST rules in 2019. Similar Marketplace facilitators legislation already came into force in the United States.

To date, 46 states have now enacted Market - Place Facilitator (MPF) legislation, including the latest – Florida and Kansas, from 1st of July this year. Canada Introduced OMPs tax obligation from the 1st of July 2021 and in the UK from 1st of January 2021.

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That means if you plan to export your goods to the US and or Canada via OMP it will be the Marketplace that is responsible for tax collection. If you plan to use a local warehouse you still need to register for sales tax or GST.

Facilitators of sales become responsible for tax when they define terms and conditions of supply.

Facilitators of sales become responsible for tax when they define terms and conditions of supply.

They are responsible for:

  • tax data collection
  • tax payments

The main idea here is to make the life of small sellers easier and shift the obligation of tax calculation/tax collection and remittance from a lot of international sellers to bigger OMP. From the tax authorities’ point of view, it is easy to control them. And for smaller e-commerce, it is easier to expand to new markets via OMP.

What Kind Of Consumption Tax To Collect

It depends on the region - in the US it is a sales tax, but in Europe, Canada, Australia it is a VAT (GST).

For more information check out the country VAT guides at LOVAT here.

Let's see when Marketplaces become deemed suppliers when facilitating European sales.

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A first use case is B2C Intra EU sales of goods by non-EU sellers regardless of the value of the goods. This is typically the case when non-EU merchant Chinese who is already storing goods in a warehouse in the EU and selling from this warehouse to final consumers in the EU. In this use case, OMP becomes the VAT collector. OMP can report these sales thru the union OSS scheme. It is not optional for OMPs.

Second use case business to consumer import of goods below 150 euro by both EU and non- EU vendors. These are direct imports from a factory or from a warehouse outside the EU to customers in the EU.

If the OMP opts for the Import OSS scheme that means that it is an OMP at checkout must collect and remit VAT on all B2C LVG imports.

If OMP chooses not to register for the IOSS scheme that means that it is up to vendors or the consumer to pay the import VAT at the border depending on whether sales are DDP or DDU.

Technically for tax accounting purposes, this Marketplace facilitation scheme looks like One single B2C supply is now split into two supplies: B2B supply between Vendor and Marketplace and second supply between Marketplace and a customer. These two supplies are designed for VAT purposes only. The first supply is zero-rated (for Intra EU sales) and the second supply is with VAT rate.

Onport & LOVAT - A Powerful Partnership For Your Marketplace.

Together, Onport and LOVAT can transform your marketplace operations. Onport helps to automate your shipping, order routing, inventory management, and vendor payments while with LOVAT, you can keep on top of whatever tax obligations you may have.

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