Croatia: Joining the EU in less than three months – ebiz and ecommerce tax implications

With the last few EU countries about to ratify the Croatian EU accession bid pretty soon it is certain that Croatia will join the EU as its 28th Member state. This will happen on 1 July 2013 – and will of course trigger some interesting tax consequences.

For tax directors and tax managers and also people dealing with the logistics, for IT teams, etc. this means that a lot of issues need to be taken care (i.e agreed, designed, implemented and tested) before 28 June 2013 (remember: 29 and 30 June are Saturday and Sunday and June has only 30 days in total). Lucky we had our own share of EU accessions to deal with in the last 10 years – these past experiences will help in getting all our clients 100% ready on time.

With this in mind let us take a quick peak on those issues that are most important for ebiz and ecommerce sector from the indirect tax point of view. Please regard this article only as a very high-level check list on some of the top priority issues; there will be also others for you to consider in your company.

Supplies to Croatian customers by EU based sellers

  • B2B sales: Remember to start checking the VAT number of your Croatian customers (e.g. via the VIES site).
  • Ebiz: Sales of eservices to B2C customers in Croatia will follow the normal EU VAT rules – i.e sales to B2C customers located in Croatia made by the EU based companies will be subject to the local VAT rate in the country where the EU company making the supply is established. Check if you will have to adjust your pricing accordingly.
  • Ecommerce – sales of goods: You will have to adjust to the application of various rules regarding distance selling, intra-Community supplies, EU-imports, chain supplies and triangulations to reflect the new status of Croatia as a full member of the EU. There will no longer be any customs border between Croatia and the rest of the EU. You might also wish to adjust your pricing (e.g. in case of distance sales) and Incoterm arrangements (to account for the absence of the customs borders).
  • Telecoms: Mostly relevant for telecoms in Austria and Slovenia – after Croatia becomes a EU Member State the local use and enjoyment rules for telecommunication services will no longer apply for roaming services provided to the Croatian telecoms.
  • Online sales of event tickets: For events taking place in Croatia, the same rules apply as in the rest of the EU – i.e. local registration in the country where the event is organized is mandatory.

Supplies to Croatian customers by non-EU sellers

  • Ebiz: Any non-EU company selling eservices to Croatian B2C customers should charge Croatian VAT. It should register for VAT locally (in principle that is what non-Croatian companies should have done even under the current Croatian VAT rules) or should start using the “One Stop Shop” (“OSS”) scheme. Any non-EU company already using the OSS scheme for sales of its eservices to B2C customers in the EU will also have to report the sales to the Croatian customers.
  • Ecommerce – sales of goods: Companies selling goods to their Croatian customers from a centralized warehouse somewhere in the EU or after the goods have been first imported into and put in free-circulation in some other EU country, will have to adjust their flows to reflect the new status of Croatia.
  • Online sales of event tickets: For events taking place in Croatia same rules apply as in the rest of the EU – i.e. local registration in the country where the event is organized is mandatory.

Supplies to EU customers by Croatian sellers

  • B2B sales: Croatian sellers will have to start checking VAT numbers of their EU buyers (e.g. via the VIES site).
  • Ebiz: Croatian companies selling eservices to B2C customers in the EU will have to start applying Croatian VAT to their supplies. OSS will be no longer applicable for the Croatian companies. Adjustment of pricing to reflect a change in the VAT rate might be necessary.
  • Ecommerce – sales of goods: Croatian companies will have to familiarize themselves with the new rules dealing with intra-Community supplies, distance selling, triangulations and chain supplies. they should also consider to adjust their pricing strategy (e.g. in case of distance sales) and Incoterm arrangements (to account the absence of the customs borders between Croatia and the rest of EU).
  • Telecoms: Croatian telecoms will be able to take the advantage of the absence of the use & enjoyment rules (used e.g. in Austria and Slovenia).
  • Tour operators and tourist agencies: Remember to apply the EU wide “travel operator margin scheme” (“TOMS”).

What else?

The above are only some of the basic issues to check and get updated before 1 July 2013. Of course there will be some specific transitional rules to deal with and of course you will have to adjust your on-line shop software, your ERP system and your VAT codes.

If you have not spoken with your CFO, tax director and your IT team yet, now might be a good time to do this. At least (compared to the 2015 changes) the rules are clear and everybody knows what needs to be done.