"Everything you ever wanted to know about taxes but were afraid to ask"

Lectronz is an online marketplace that helps sellers reach a large community of open-hardware enthusiasts and engineers. For this service, Lectronz collects a 5% platform fee on the total price of each order including shipping (but excluding taxes). Sellers are responsible for stocking and shipping products to customers. In most cases, sellers are also responsible for collecting and paying relevant sales taxes. In this context, Lectronz provides a set of tools that can help sellers deal with taxes.

When you sell on Lectronz, you can configure your store to calculate applicable taxes based on the location of the buyer. For example, a business based in Germany will likely configure its store to add a 19% tax on sales to customers in Germany as required by law. That German business will then collect and declare this tax every month with the local tax authority.

Until recently, sellers outside of the European Union (EU) that sell to customers inside the EU didn't have to worry much about taxes. All shipments with a merchandise value of less than 22 EUR were basically exempted from tax. As such, a seller in the US shipping a 15 USD dev board to France didn't have much to worry about.

However, on July 1, 2021, all this changed. The European Union removed the 22 EUR threshold, and all shipments to EU customers are now subject to VAT. This means that EU customers receiving a package from outside the EU face the prospect of dealing with customs, additional processing fees, and delays even for a simple 15 USD dev board. To avoid this, a new special scheme has been created in the EU: marketplaces like lectronz.com can take over the collection and filing of taxes for the seller. The marketplace then provides the seller with a special tax number called the "IOSS number" that the seller's shipping company can use to pre-declare the package for import in the EU, avoiding additional fees or delays. This only applies to orders with a merchandise value of less than 150 EUR.

When a user visits the Lectronz website, we try to guess the visitor's country of origin and display taxes accordingly. Of course, the visitor can change this setting. But, ultimately, we use the country defined in the shipping address to calculate the final taxes that apply to an order, if there are any.

Let's review the different tax scenarios and the features that lectronz.com offers to help sellers deal with taxes.

Case 1: Your customer is outside the EU.

This is the simplest case. You can configure taxes as you wish, based on the country of the customer. As a seller, you are responsible for handling taxes.

In the US, you can even define taxes at the state level.

Case 2: You're a seller based in the EU, and your customer is in the EU.

2.1 Business-to-consumer (B2C)

Business sellers based in the EU are required to collect and declare VAT (Value Added Tax) for all sales to non-business customers in the EU. Lectronz lets businesses configure the VAT rate they want to apply to each country they serve. In practice, for sellers, there are two approaches:

  1. Configure your store to apply the VAT rate of your country of establishment regardless of the customer's location in the EU. This is allowed if your total revenue in the EU was less than 10K EUR in the past year.
  2. Apply the VAT rate of the country where the customer is located. This is the general rule.

Sellers can voluntarily apply the second approach if they wish, even if they don't meet the 10K threshold. They need to notify their competent national authority.

If the first approach is applied, sellers will declare the collected taxes to their national tax authority, usually every month. If the second approach is applied, sellers will declare the collected taxes for each foreign country every quarter through their national OSS (One Stop Shop). This OSS mechanism is relatively new but is rather easy to set up. Of course, when the customer and the seller are in the same country, the VAT is declared through the national tax authority and not the OSS.

The seller is responsible for collecting and declaring taxes/VAT in both approaches.

2.2 Business-to-business (B2B)

Business sellers based in the EU can sell products to other businesses with a 0% VAT rate, provided that the customer has a valid VAT ID and is located in a different member state than the seller.

Sellers can enable this feature in the "Taxes" tab in their store dashboard on Lectronz. Business customers can then provide their VAT number during checkout, and if this number is valid, a 0% VAT rate will be applied.

Again, the seller is responsible for declaring these 0% VAT sales where applicable.

If the seller and buyer are in the same member state, the rules for B2C apply (see 2.1).

2.3 Non-business sellers

Non-business sellers (e.g., hobbyists) based in the EU are generally not required to collect VAT. Note however, that many countries have different tolerances for "non-business" sellers that may restrict this kind of activity in terms of volume, for example. Please check with your applicable national laws.

Non-business sellers will have to pay VAT on the 5% fee that lectronz collects. In practice, this means that Lectronz will collect a fee that represents 6.2% of the order's total. Of that 6.2%, 5% represents lectronz's fees, and the remaining 1.2% represents 24% of VAT.

2.4 Business sellers established in Greece

The rules for businesses established in Greece are almost the same as those that apply to businesses in other member states, with one exception: businesses will have to pay VAT on the 5% fee that lectronz collects. This is similar to what happens to non-business sellers, as described above.

The reason for this exception is that Omzlo IKE, the company that runs Lectronz, is established in Greece, and therefore national rules apply if the seller is also based in Greece.

Case 3: You're a seller outside of the EU, and your customer is in the EU.

If you are a seller outside of the EU that ships an order to a customer in the EU, there are two scenarios, depending on whether the merchandise value of the order (i.e., excluding shipping) is above a 150 EUR threshold or not. As a rule of thumb, 150 EUR is approximately 165 USD, depending on the USD/EUR exchange rate.

3.1 The merchandise value in the order is less or equal to 150 EUR

By default, for orders below 150 EUR, lectronz will automatically apply VAT to the order based on the national rate of the country described in the customer's shipping address.

Lectronz will collect this tax on behalf of the seller. In other words, the total amount of fees collected by lectronz will include our nominal 5% fees and the applied VAT. Lectronz will declare and pay this collected tax every month to the relevant authorities through its national IOSS (Import One Stop Shop).

Sellers will be provided with our IOSS number that they can share with the transporter that is used to ship the package to the customer to avoid any additional fees during import to the EU. The US Postal Service has a FAQ that describes this process.

In this scenario, Lectronz (Omzlo IKE) is considered as the "deemed supplier" of the order for tax purposes (and only for tax purposes). This is the only case where Lectronz (Omzlo IKE) is responsible of collecting and filing taxes on behalf of the seller.

The seller can disable this "deemed supplier" mechanism in the "Taxes" tab in their store dashboard on Lectronz. In that case, customers will have to pay taxes during import and additional customs processing fees.

Note that Lectronz (Omzlo IKE) is required by law to keep records of all orders and make them available to customs and tax authorities, notably to check that the value declared during import matches the actual value paid by the customer.

3.2 The merchandise value in the order is greater than 150 EUR.

In this scenario, Lectronz will not collect any VAT on behalf of the seller. The customer will have to pay taxes during import and additional customs processing fees.

Current limitations

Lectronz does not yet handle taxes for sales to UK customers, with the new regulation created following Brexit.