DAC7 – the new type of registration for online marketplaces
DAC7 reporting deadlines postponed
Some countries have announced extensions for the first reporting deadline, which was originally set for 31 January 2024
- Until April 1 the German government has extended the deadline for submitting DAC7 reports.
- To February 19 Luxembourg has pushed the deadline back and granted an extension for DAC7 reporting.
- To February 2 France has extended its DAC7 reporting deadline.
- February 7 Ireland’s DAC7 reporting deadline.
Marketplaces are gaining more and more popularity and influence on the world economy every day. That’s why government agencies are creating new tools to regulate their work, transparency of activities, and proper payment of taxes. One such tool is the DAC7 directive, which extends EU transparent taxation to digital.
In this article, we will analyze what the DAC7 directive is, what you need to know about it, what data will be required to file DAC7 reports, and how to prepare so that the changed regulation doesn’t affect your activities too much.
DAC7: what is this about and how does it work
DAC7 is a tax directive that includes collecting and processing data on merchants and their income that operate through digital online marketplaces and other platforms. It implies cooperation between member states to ensure correct and transparent taxation within the EU.
With the advent of DAC7, merchants will be required to report all commissions they receive from their activities. This includes various trading and work platforms such as Uber, Amazon, eBay, Fiverr, Upwork, etc.
However, not all platforms are subject to the directive – there are exceptions. For example, platforms where payment flows are not processed, but only goods/services are displayed, were exempted.
Excluded Platform Operators aren’t subject to DAC7
By virtue of the law, platforms facilitating the rental of real estate, sale of goods, provision of professional services and transport services must report on their sellers. This means that platforms that facilitate other services are excluded (Excluded Platform Operator). An example of this would be a platform selling digital services that do not fall under any of these four categories
But even such companies aren’t completely exempted from communications with the tax authorities. They will need to submit documents every year that prove exemption from DAC7.
Another type of Excluded Platform is services that DAC7 classifies as payment or marketing platforms. This includes payment systems (such as Stripe and PayPal), instant messengers, free message boards, and directories that only redirect users to other services.
How will the directive affect marketplace founders?
Before the directive goes into effect, marketplace founders need to carefully evaluate and review their performance and understand exactly how future DAC7 reporting may affect their business. This will prepare you for possible difficulties and minimize risks. If the founder fails to submit a marketplace report on time, he or she could face significant fines.
We wrote about all the exceptions above. Also, if your business is one of the exceptions, we recommend that you check your local applicable laws, because there may also be special conditions that aren’t related to DAC7.
Is there a threshold for DAC7 registration in the EU?
No, each platform operator that facilitates transactions mentioned in the section (What kind of platforms need to register?) must register and submit a DAC7 return. Even if a platform doesn’t have reporting merchants, a platform must submit a nil DAC7 Report.
What kind of platforms need to register?
There are four types of reported transactions:
- Rental of commercial and residential property;
- Sale of physical goods;
- Provision of professional services;
- Rental of all types of vehicles.
DAC7 regulation covers almost all trading platforms that operate in the European Union. At the same time, they don’t have to be located in one of the EU countries; the directive also applies to non-EU platforms with sellers in the EU.
For marketplaces, it’s a one-stop shop for DAC7 registration for all EU countries. Countries share the data they receive from a common exchange system. Thus, each platform will communicate with the local tax office, even if the checks are from the tax office of another country.
What information needs to be submitted?
In accordance with the DAC7 directive, all marketplace operators must comply with the reporting platform, which includes the following data:
- Information about the seller (name, date of birth, address);
- Which country of the European Union does it belong to;
- Account ID or bank account number;
- Taxpayer identification and registration number (registration number doesn’t apply to individuals);
- Amount of transactions per year;
- All types of payments held by the site for a given period;
- If transactions include the rental of real estate, the platform needs to report the property address.
At the same time, even among the sellers that fall under the directive types of transactions, there are those that don’t need to be included in return.
- The first is small sellers who sell goods and make less than 30 sales during the reporting period, and their transactions don’t exceed 2,000 euros. This small business threshold doesn’t affect those providing services or letting property.
- The second type of exempted sellers is active rental property providers, such as tour operators and hotels, where there is a large flow of bookings.
GDPR is the EU data protection regulation. When collecting data for reporting under the DAC7 directive, it’s imperative to take into account compliance with GDPR requirements. The operator is also required to notify all suppliers of the specific information it collects. For third parties, it must be absolutely confidential. All collected data, the company must store for up to 10 years (the period depends on the laws of the country).
The European Union must convert DAC7 into law by the end of 2022, because it should come into force as early as January 1. The 2023 report must be submitted by January 31, 2024. What exactly this report will be, each country decides separately, because only a specific EU member state will need to submit information. Only when necessary, countries can exchange data.
Due to constant growth and the large market segment occupied by digital platforms, it was decided to introduce a separate directive that would ensure correct and transparent taxation. According to the DAC7 directive, operators of digital trading platforms must submit reports to the country of the European Union to which they belong. The first report must be submitted by the end of January 2024. All operators are advised to prepare for changes in the regulation.
In order to comply with DAC7 reporting requirements seamlessly, marketplace founders can leverage the capabilities of our API for online marketplace. Our API enables marketplace facilitators for all reporting functions, including the ability to calculate tax at buyers’ locations, collect data, and fill and submit reporting forms. By integrating our API into your platform, you can streamline the reporting process and ensure accurate and timely submission of the required information.