Application of the MOSS / OSS system

Maintaining tax compliance and respecting local taxes is always one of the most important challenges related to international business. In order to ensure compliance with the regulations of the country in which you plan to do business, obtaining a VAT number is usually one of the first steps, and there are several reasons why it is necessary to have one. One of the reasons is reaching the annual VAT threshold for distance selling of goods, i.e. exceeding the annual turnover of e-commerce for distance selling.

When to register for VAT?

There are several reasons that require registration for VAT in the country where you plan to deliver goods or services – for example, if you plan to store and sell goods from a European country or establish a company in a country that is not your domicile, but it is definitely necessary to check in detail before starting any actions what are your tax obligations, especially regarding the obligation to register for the purposes of VAT and, accordingly, take care of the timely filing of tax reports.

One of the reasons that, until July 2021, required you to register and obtain a VAT ID number in a foreign country – was reaching the annual threshold for distance sales. Member states individually determined the delivery threshold, which could be between EUR 35,000 and EUR 100,000. In the Republic of Croatia, the delivery threshold was HRK 270,000.00. If you sold goods abroad via distance selling within Europe, the VAT number of the country of your company’s headquarters was used until you exceeded the annual sales threshold in the foreign country to which you delivered.

However, the rule related to thresholds has been changed and as of July 2021, national VAT thresholds have been abolished and a single threshold for distance sales within the EU of 10,000 euros has been introduced. Below this threshold, deliveries and services are taxed at the VAT rate of the supplier’s country, i.e. VAT is paid in the country of your company’s headquarters. As soon as distance sales exceed the EU threshold, VAT must be calculated in each country to which the goods are delivered. In this case, it is necessary to register for VAT in each of these countries.

Which means that if a foreign taxpayer is obliged to obtain a VAT ID number, when submitting an application for registration for VAT purposes, he should attach a certificate from the tax administration of the country in which he is based that he is registered as a taxpayer or a certificate of registration with the competent authority of the country. It is also necessary to attach a statement or other evidence confirming the intention to deliver goods and services on the territory of the Republic of Croatia, as well as a power of attorney or a tax representation agreement, if the representation is contracted. It is important to note that the taxpayer may not authorize more than one tax representative at the same time.

For the purpose of additional relief for entrepreneurs and easier fulfillment of reporting obligations.

Until July 1, 2021, taxpayers could use the special taxation procedure and the MOSS (Mini One Stop Shop) electronic system, but only for telecommunications services, radio and television broadcasting services, and electronically performed services provided to non-taxpayers.

However, from July 1, 2021, the application of MOSS is extended to all services provided to persons who are not taxpayers, as well as to the sale of goods at a distance. The MOSS system becomes OSS (One Stop Shop), with the aim of enabling taxpayers to fulfill their VAT obligations towards all EU member states through one member state, by submitting a single VAT return through that system. Information from the application is automatically forwarded to member states where supplies are subject to taxation.

Thus, the VAT Law prescribes additional provisions related to special taxation procedures, of which we single out:

Special taxation procedure for services performed by taxpayers who do not have a registered office, permanent business unit, domicile or habitual residence within the European Union. Such a taxpayer can choose any member state as his country of filing. The Member State of consumption is the one in which the service is considered to have been provided to persons who are not taxpayers, in accordance with Articles 16 to 26 of the VAT Act. This includes services such as transportation, access to cultural, sports and educational events, services related to real estate and the rental of means of transport.
The special taxation procedure also applies to the sale of goods at a distance within the European Union, the delivery of goods within a member state enabled by electronic interfaces/portals, as well as to services provided by taxpayers based in the European Union, but without a seat in the member state of consumption. This procedure can be used by taxpayers who have their headquarters, permanent business unit, residence or habitual residence in the EU, but not in the Member State of consumption. The member state of the declaration will be the one in which the taxpayer has its seat, domicile or residence, or, if this does not exist, the member state in which the taxpayer has a permanent establishment. If there is no permanent business unit within the EU, the Member State of application becomes the one in which the transport of goods begins.

So, when the delivery threshold is exceeded, the place of taxation becomes the residence of the service recipient, that is, the location where the transport of goods to the customer ends. After crossing the threshold, the taxpayer can submit an application for the application of the OSS system. If he does not choose this option, he is obliged to register for VAT purposes in each member state where the place of taxation of his deliveries is located.

Author, Admin – FINACRO doo

Sources:

Law on Value Added Tax (OG No. 73/13 – 35/24),
Ordinance on Value Added Tax (OG No. 79/13 – 39/24)
Council Directive (EU) 2017/2455 and Council Directive (EU ) 2019/1995
https://www.porezna-uprava.hr/PdviEu/Stranice/PDV_OSS.aspx
RRIF