Implementation of EU directive in the VAT Act of the Czech Republic

However, the delay in the legislative process hit a snag. The amendment should have been effective from 1 July 2021, as required by the relevant legislative package of the European Commission that aims to standardise and simplify VAT rules in the European Union that affect e-commerce. As announced earlier by the Czech Financial Administration, despite the delay in the legislative process the new EU VAT rules on e-commerce have been in force from 1 July 2021 in the Czech Republic, just like in all EU Member States, as required by the EU Directive.

Thus for the transition period from 1 July to 30 September 2021, taxpayers could make use of the directive’s direct effect and apply the rules defined in European legislation. This option was used by the vast majority of taxpayers. The main reason is that in other EU countries the relevant rules were amended from 1 July 2021, and it was not possible to continue applying the original procedures.

Now, however, the VAT Act of the Czech Republic is compliant with the relevant European directive. The main changes of the amendment concern the following areas:

Remote sale of goods (formerly, sending goods)

One of the most important changes to the VAT Act of the Czech Republic affects the taxation of shipments of goods between EU Member States. The original limit for delivering goods to final customers in other EU countries through an e-shop was EUR 35,000 or EUR 100,000, and was counted separately for each country. Now there is a single limit of EUR 10,000 per year for all EU Member States together. The limit for the duty to register for VAT in other EU countries will therefore be reached very soon.

Extension of the One Stop Shop concept

However, the European directive and the amendment to the VAT Act of the Czech Republic allow expanded use of the One Stop Shop (OSS) concept. If an e-shop registers with the OSS in the Czech Republic, it will pay VAT on all consignments to other EU countries in the Czech Republic in the form of a special VAT return and will also not have to register for VAT in any other EU Member State. This option can also be utilised for the import of consignments up to a value of EUR 150.

Abolition of exemption from VAT for low-value goods imports

According to this recent amendment, in the case of importing goods with a value not exceeding EUR 22 the exemption from VAT is cancelled. They are now subject to VAT.

If you are affected by the aforementioned changes of the VAT Act of the Czech Republic, please do not hesitate to contact the experts of WTS Alfery, the exclusive representative of WTS Global for the Czech Republic.

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Reduction of personal income tax rates

As one of the most important elements of the Croatian Tax Reform 2021, starting from 1 January 2021 the personal income tax rates were reduced from 24% to 20%, and from 36% to 30%. The reduced personal income tax rates are applicable for employment, self-employment income as well as income from freelance activities such as author’s fees.

A reduced income tax rate of 10% (previously 12%) is levied on capital income based on dividends and profit shares, rental income, as well as capital gains and income from self-employment taxed at a flat rate.

Reduction of corporate income tax rates and withholding tax on dividends

Another important element of the Croatian Tax Reform 2021 is the reduction of the corporate income tax rate from 12% to 10% for taxpayers with revenue up to HRK 7.5 million (roughly EUR 1 million). This tax amendment took effect on 1 January 2021 as well. The corporate income tax rate of 18% remains in force for all taxpayers earning annual revenues of more than EUR 1 million.

The latest amendments to the Croatian Corporate Income Tax Act also prescribe a reduction of the following withholding tax rates:

• From 12% to 10% for payments of dividends and profit shares to foreign legal entities. This evens out the tax rates on dividend and profit shares that are paid to legal entities with the tax rates on dividends and profit shares paid to natural persons.

• From 15% to 10% for payments of fees for performances of foreign performers – artists, entertainers and athletes, when the fee is paid by a Croatian or a foreign payer based on a contract with a foreign person that is not a natural person.

Other fees subject to withholding tax (e.g. consulting services, royalties, etc.) remain taxed at a rate of 15%.

Non-cash payment of VAT on imports

According to the changes to the Croatian Tax Reform 2021, VAT payers with the right to deduct input tax in full are now able to use the non-cash payment of VAT on imports for all imported goods, regardless of their type and value, by recording the import VAT as a liability in their VAT return and simultaneously as a right to deduct input VAT. To be able to use this option, the taxpayer has to submit the request by completing the customs declaration appropriately for the release of goods for free circulation.

Introduction of OSS as part of the Croatian Tax Reform 2021

The Croatian Tax Reform 2021 has also fully implemented Council Directive (EU) 2017/2455 of 5 December 2017 in the Croatian Value Added Tax Act. According to the implemented directive, the application of the special taxation regime for telecommunications services, radio and television broadcasting services and electronically performed services was expanded from 1 July 2021. The OSS (One Stop Shop) regime in Croatia now also applies for distance sales within the EU, i.e. the supply of goods within a Member State via electronic interfaces and for services supplied by taxpayers established within the EU, but not based in the Member State of consumption. 

Changes to the taxation of travel packages sold by non-EU travel agencies 

Croatia is one of the first EU Member States to introduce new rules for the taxation of travel agencies based outside the EU. Pursuant to the changes in the Croatian Tax Reform 2021, from 5 January 2021 when a non-EU travel agency sells services performed by other persons in its own name, the Tour Operators’ Margin Scheme (TOMS) is not applicable. Instead, in cases when a non-EU travel agency sells services related to travel (accommodation or transportation) for which the place of taxation is in Croatia, the non-EU travel agency is obliged to register for VAT purposes in Croatia. Also, non-EU travel agencies registered for VAT purposes in Croatia must appoint a tax representative in Croatia.

Digital nomad residence permit and income taxation

The Croatian Tax Reform 2021 has also introduced the so-called digital nomad residence permit. It means that as one of only 32 countries all around the world, Croatia officially started granting temporary residence permits to digital nomads as of 1 January 2021. The introduction of this permit adds a new option for non-EU nationals to live and work in Croatia up to one calendar year. To obtain such status, applicants have to prove their financial independency, i.e. prove that their regular income amounts to at least HRK 16,907.50 (EUR 2,256.44) per month, or HRK 202,890 (EUR 27,077.27) per year, plus an additional 10% increase per family member.

For taxation purposes, the income of persons having acquired digital nomad status in Croatia stemming from their employment activity with the foreign employer shall not be taxable in Croatia. Therefore, obtaining digital nomad status offers the following benefits: 

• No tax is paid in Croatia on such income;
• There is no reporting obligation for such income in Croatia;
• There is no obligation to pay social security contributions (travel or private health insurance is necessary).

If you would like to know more about any elements of the Croatian Tax Reform 2021, please visit the homepage of Tax Advisory TUK Ltd., the exclusive representative of WTS Global in Croatia.

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The system already existed in the Romanian Fiscal Code under the name “Mini One Stop Shop” (MOSS) before 1 July, but only for electronic services. On 1 July 2021, it was expanded to include several categories of transaction, becoming the “One Stop Shop” (OSS).

These provisions aim to extend the simplification measures applicable to certain transactions with non-taxable persons (mainly natural persons) and applying VAT from the Member State of the buyer (thus avoiding registration for VAT purposes in multiple EU states).

Three special OSS regimes in Romania

Since 1 July 2021, three special OSS regimes are in force in Romania:

• The first of the special OSS regimes can be applied for certain services provided by taxable persons not established in the European Union towards non-taxable persons.

• The second of the special OSS regimes can be applied for transactions with non-taxable persons for distance sales of goods between Member States, for deliveries of domestic goods made by electronic interfaces facilitating such deliveries and for certain services provided by taxable persons established in the EU towards non-taxable persons, but not in the Member State of consumption.

• The third of the special OSS regimes can be used for the distance sale of goods imported from outside the EU.

A single ceiling of EUR 10,000 (roughly RON 46,337 in Romania) has been set in all Member States for intra-community deliveries of distance goods or, inter alia, for services provided electronically. So if this threshold is exceeded, the special regime is applied. However, it is possible to apply the special regime for at least two calendar years even if the ceiling is not exceeded.

Basically, in the case of sales to individuals from other EU countries, a Romanian company will apply:

• the Romanian VAT rate for sales under the ceiling,
• the VAT rate in the buyer’s state for sales above the ceiling.

Special regime for services provided by taxable persons not established in the European Union

Any taxable person not established in the European Union may use a special regime for all services provided to non-taxable persons who are established in the EU. The special regime allows, inter alia, the registration in a single Member State of a taxable person not established in the EU for all services provided to non-taxable persons established in the EU.

The entity will receive a special registration code for VAT purposes, and it is not necessary to appoint a tax representative.

By the end of the following month after the end of each calendar quarter, this entity must submit a special VAT return (in EUR) – regardless of whether services were provided under the special regime – which will contain:

• the special registration code for VAT purposes;
• total value, excluding VAT, of the services under the special regime, the applicable VAT rates and the corresponding amount of VAT subdivided into quotas, due to each Member State of consumption,
• the total amount of VAT due in the EU.

The taxable person not established in the EU must pay the total amount of VAT due in the EU, to a special account, in EUR, by the date on which the special declaration must be submitted. It cannot deduct VAT through the special tax return, but it can request a VAT refund under certain conditions (amongst others, if there is a reciprocity agreement regarding the VAT refund between Romania and the respective country).

Click here if you want to read the full article about the new special OSS regimes in Romania on the homepage of Ensight, the exclusive representative of WTS Global in the country.

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Most important elements of the new regulation 

The goal of the European Commission is to standardise and simplify the VAT rules that affect e-commerce. They basically want to make cross-border commerce easier, create a level playing field, and reduce the administrative burdens of businesses. The most important elements of the new regulation:

• expansion of the application of one-stop shop systems,
• transformation of the rules on product imports (import one-stop shop, termination of tax-exempt status for low-value imported packages, i.e. below EUR 22),
• inclusion of electronic platforms (intermediaries) in taxation in certain cases,
• change in definition of distance selling.

Wider application of one-stop shop systems 

The one-stop shop system currently available is the so-called MOSS system (Mini One Stop Shop), which is only applicable for services that can be provided at a distance (telecommunications, electronic, radio and audiovisual services). From 1 July, the name of the MOSS system will change to OSS and its application will be extended with all the services provided for non-taxpayers where the place of performance is in the Member State where the consumption took place, and with distance selling. Within the OSS we can distinguish between EU and non-EU one-stop shop systems depending on which transactions these can be applied for. Additionally, a separate one-stop shop system will be created for the distance selling of products with an intrinsic value of no more than EUR 150, imported from a third country: the IOSS (Import One Stop Shop).

Common features of one-stop shop systems 

Perhaps the most important common characteristic of all three one-stop shop systems is that selecting them is not mandatory, just an option. Businesses that use the one-stop shop systems can decrease their administrative costs significantly. The essence of these systems is that taxpayers fulfil their tax obligations affecting several Member States simultaneously by submitting one tax return in one specific Member State, thus sparing the need to register in the other Member States.

An additional common characteristic of one-stop shop systems is that there are no rights of deduction. Deductible taxes can basically be reclaimed through tax refunds. In certain cases, the given taxpayer may be registered in the Member State where the registration took place. In this case, the right to deduction can be applied in the tax return submitted in the given Member State.

Change in the rules of distance selling 

The definition of distance selling will change as of 1 April, and from that time onwards there will be two types of distance selling: intra-Community distance selling and the distance selling of imported products.

The thresholds defined by the individual Member States will be cancelled, including the threshold of EUR 35,000 in the case of Hungary for example, while taxpayers using distance selling can register in the one-stop shop system and settle their tax liabilities in respect of several Member States simultaneously.

Let’s take an example. A company based in Hungary conducts distance selling from Hungary to several states of the EU (Germany, Austria, Slovakia). Based on the rules prior to 1 July, the company must monitor whether the value of its sales to the individual Member States exceeds the threshold in the given Member State (e.g. in the case of Germany it is EUR 100,000). If not, it can issue invoices with Hungarian VAT, but if the threshold is exceeded, it has to register in the given Member State. Based on the rules valid from 1 July, if the above Hungarian company selects the one-stop-shop system it must file its tax return and pay (via the return) the VAT on its sales to the other Member States (according to the VAT rates valid in the given Member State), thereby avoiding the need to register in the other Member States. It is important for the Hungarian company to report its sales with a place of performance in Hungary in VAT tax return no. 65, and not in the one-stop shop system.

Filing of tax returns

Tax returns must be filed electronically in each of the one-stop shop systems: quarterly in the EU and non-EU one-stop shop system, and monthly in the import one-stop shop system. The deadline for the tax returns and the payment of taxes is the last day of the month following the given tax assessment period.

Taxpayers registered in Hungary’s one-stop shop system should prepare their tax returns in HUF, while for conversions, the exchange rate published by the European Central Bank and valid on the last day of the tax assessment period should be applied.

Adjustment of tax returns

If the tax returns already submitted must be revised, taxpayers can do so in a subsequent tax return within three years of the filing deadline of the original tax return. Revisions are possible even after three years, but within the limitation period. Yet this is not done in the one-stop shop system, you should contact the competent tax authority in this matter.

Transitional rules

Taxpayers have the opportunity to register in one of the one-stop shop systems from 1 April 2021. Taxpayers already registered in the one-stop shop system as of 1 April 2021 because of services that can be provided from a distance do not have to register again. However, they should not forget to report some data to the national tax and customs authority by 15 June. But taxpayers already registered in the one-stop shop system and who now want to use it as a distance seller must register in the EU’s one-stop shop system.

Problem of online data reporting for invoices

In line with previous announcements, from 4 January 2021 the online invoice 3.0 system was launched in Hungary as the third and final step of extending online data reporting for invoices in Hungary. Upon the introduction of online invoice 3.0, the data reporting obligation for invoices is extended, among others, to include invoices issued to non-taxpayers, such as natural persons. While the VAT law exempts taxpayers registered in the one-stop shop system in Hungary from online invoice data reporting, this exemption is only valid from 1 July. Consequently, taxpayers who currently conduct distance selling and who wish to utilise the opportunities offered by the one-stop shop system from 1 July, would still have six months to fulfil their Hungarian online invoice data reporting obligation. Nevertheless, to be able to bridge this half-year period and gain exemption from the data reporting obligation, these taxpayers can utilise the moratorium until 30 June (that is originally in force until 31 March for other taxpayers), provided that they register in the one-stop shop system in their home country until 1 July and they make only distance selling to Hungary).

Although one-stop shop systems represent significant administrative easing for enterprises, it is obvious that companies involved in e-commerce should prepare for important changes from 1 July. It is worth starting to prepare in time. If your company is affected, please do not hesitate to contact our tax consulting team.

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