Month: November 2019

Special features of tax treatment for trading a Bulgarian company via Amazon and Ebay or similar online marketplaces.

In most cases it is the so-called drop shipment, or commonly known as drop shipping model. This is a business model in which the seller of the item does not own the corresponding product, but advertises the product on a certain online platform and receives the money from the customer after a sale has been made, thus buying the item from his supplier, who in turn delivers it directly to the customer. The Dropshipping provider contacts the wholesaler and gives him information about the delivery of a certain quantity of goods. The supplier delivers the goods directly to the customer by courier. For this purpose, the Dropshipping provider concludes a brokerage contract with the supplier. Its task is to acquire customers and take orders against advance payment. After the customer has paid the full amount, he will be forwarded to the supplier with deduction of the commission. The order will be sent to the supplier who will send the items to the customer. If contractually agreed, the item can also be dispatched in the name of the agent.

From a tax point of view, these transactions differ depending on whether the supplies are within or outside the Member States of the European Union.

I. Supply of goods to third countries (outside the EU)

As a rule, consumers of online commerce are natural persons who purchase the items directly from Amazon. It only becomes difficult to determine whether the customer of the Bulgarian company (recipient of the object within the meaning of Art. 11 para. 2 VAT Act) is the American company Amazon (acting in its name and for the account of the Bulgarian company) or the final consumers (usually natural persons). As mentioned above, this depends on the actual supplier of the item to the final consumer – Amazon as intermediary or the supplier’s company.

Pursuant to the provisions of Art. 12 VAT Act, a taxable supply of goods is any supply within the meaning of Art. 6 VAT Act carried out by a taxable person under this Act with a place of performance within the country and a supply by a taxable person taxable at zero rate, unless the law provides otherwise.

The place of performance for supplies of goods is governed by Article 17 of the Act. Article 17(2) of the Law states that the place of performance for supplies of goods dispatched or transported by the supplier, the consignee or a third party is the place where the goods are located at the time of dispatch or at the beginning of transport to the consignee. If, at the time of the transfer of ownership or dispatch of the goods to the consignee, the goods are outside the country, the place of performance shall also be the place where the goods are located – outside the country. There are the following variants of delivery:

A) Supply of goods transported from Bulgaria to a third country

In this case, the supply is taxable at zero rate, as is the case under Art. 28 VAT Act for supplies of goods dispatched or transported from a place in the country to a third country or territory by or on behalf of the supplier; or for supplies of goods dispatched or transported from a place in the country to a third country, provided that the consignee is a person not established in the country.

According to Art. 21 VAT-Act, the documents required by law for the proof of supplies pursuant to Art. 28 nos. 1 and 2 are a customs document in which the supplier is registered as the exporter of the goods, or another document proving the export, if customs law allows the possibility of not having to submit a customs document; invoice for the supply; transport document for these goods.

B) Supply of goods acquired in an EU country and subsequently transported from an EU Member State to a third country

The acquisition of ownership of an object in an EU member state constitutes for the enterprise an intra-Community acquisition (i.g.E.) within the meaning of the law. However, it must be taken into account that the place of performance of this delivery, where the company acts as the recipient, is determined in accordance with the provisions of Art. 17 (1) UStG and that is the place where the object is located at the time of the transfer of ownership – the Member State outside the country. This supply does not constitute an i. g. E. within the meaning of Art. 13 para. 1 of the Act, set the case where the acquisition of ownership of the object takes place in another Member State and it is not dispatched or transported by the Member State to the country or to another Member State, as is the case here.

For the purpose of determining the place of performance of the subsequent delivery of the goods dispatched from a Member State to customers in a country outside the EU, the provision of Article 17(2) of the law shall apply again where the place of performance is outside the country.

C) Supply of goods acquired in a third country and subsequently transported to a customer outside the EU

In this case, for the purpose of determining the place of performance of the first delivery, whereby the Company acquires the title to the goods, the provisions of Article 17(1) of the Act shall apply and, in view of the foregoing, the place of performance for such delivery shall be outside the country. The subsequent delivery of the goods dispatched from the place of acquisition of ownership to the customer in a third country is the place of performance outside the country in accordance with Art. 17 para. 2 VAT Act.

Pursuant to Art. 79 para. 2 no. 4 UStGDV in conjunction with Art. 28 UStG, if the taxable person does not justify a tax assessment for the supply, the supplier must issue a proper invoice with a place of performance in a third country or territory; the invoice/credit/debit note must state the relevant legal provision as the basis for not charging VAT.

Provision of intermediary services by intermediaries

At the end of the month, Amazon issues an invoice/letter summarising sales and fees payable for online trading, as well as invoices for the fees invoiced. Pursuant to Art. 82 para. 2 UStG, if the supplier is not a taxable person resident in the country and the place of performance of the supply is in the country, and if the supply is taxable, the tax is to be paid by the recipient of the supply if he is a taxable person. If the Company does not have a VAT identification number, it is assumed that the place of performance is the supplier of the service. Pursuant to Art. 97 para. 1 UStG, every taxable person within the meaning of Art. 3 para. 1, 5 and 6 who receives taxable services with a place of performance in the country and the tax is to be paid by the recipient of the service pursuant to Art. 82 para. 2 is subject to the obligatory declaration pursuant to the UStG. The Bulgarian company shall draw up a report for the corresponding fees on the basis of the settlement received in accordance with Art. 117, para. 2 of the VAT Act, whereby the service recipient applies the reverse charge procedure to the net invoice amount and must state “Art. 82, para. 2, no. 3 of the VAT Act” as the basis.

II. supply of goods within the EU

Depending on whether the recipient of the items is Amazon or the final consumer – natural person – there are two possibilities:

1. intermediary as the recipient of the items

In this case, the agent (Amazon) is the recipient of the items through the corresponding branch in an EU member state. Under Article 7(1) of the VAT Act, an intra-Community supply is the supply of goods transported by or on behalf of the supplier – a person registered under this Act – or of the consignee from the country in another Member State, when they are supplied to a taxable person or to a non-taxable legal person registered for VAT purposes in another Member State. Under Article 53(1), intra-Community supplies are subject to zero rate taxation in accordance with Article 7. The supplier of the goods must issue Amazon with a zero rate invoice stating the basis on which the VAT was not levied (Article 53(1)) and the indication “Reverse Charge”. With regard to the transport of the goods, the declaration rules already set out in this article shall apply. These rules also apply to Amazon’s brokerage services, since the law between EU Member States and third countries does not apply to recipients of services who are resident outside the country.