Retrospective tax registration

Why you may need retrospective tax registration?

Sometimes sales start expanding to new markets. Especially with these remote times, we don’t know where our new customer is located.

That means that we need to track:
– where our customers are located;
– revenue thresholds for each country;
– where our goods are stored (especially when using fulfilment services).

In such situation, businesses can realize that they should be registered for sales tax or VAT later than expected. In this article, we overview what to do if you are late with tax registration.

Retrospective VAT registrations

Every country has its own set of rules: one country allows voluntary VAT registration another has no such option. The same picture with retrospective VAT registration some countries allow others don’t allow retrospective VAT registration.

There are some common restrictions to apply for the retrospective VAT registration:

1. Seller had a valid VAT number
2. Seller has been deregistered in the applied period
3. Seller apply after a tax audit

The majority of countries (among them the UK, Russia, Germany, France) allow retrospective registration when you realized that you had obligation to register after you already had revenue or assets in a country. Some countries (among them Slovenia, Italy) don’t allow backdated registration – that means that you only get your VAT number in the current period, but will need to report previous sales you made in this country without a right to credit incoming invoices for the previous periods.

Examples:

UK – retrospective registration is possible but limited by 4 years of this retrospection.

Ireland – The commencement date of the registration may be backdated to a prior date only in cases where the annual expected turnover exceeds the VAT registration threshold. Voluntary registration cannot be backdated.

Italy – no backdated registration. You need to list all your taxable revenue before registration with the application form for registration.

Slovenia – no backdated registration.

OSS – there is no possibility to apply retrospectively. There is only a possibility to apply during a running quarter. The application for the implementation of the special scheme must be submitted by the 10th day of the month following the month when the goods were sold or the services were provided.

IOSS – there is no possibility to be registered retrospectively. The special scheme is applied from the day when the user of the special scheme receives the registration number for the IOSS special scheme.

How to proceed if there is no retro tax registration?
In case you missed a deadline for OSS VAT registration your only option is to register in each member state where you have sales or assets for VAT.
In a country where there is no retrospective VAT registration for example Italy – you need to register for VAT and then submit all your VAT due for previous periods without a right to deduct the VAT from incoming invoices.

Retrospective Sales tax registrations

Registration rules vary state by state. But as an obligation to register is still quite new for remote sellers almost all states allow to disclose retrospective sales voluntarily. Some states have Voluntary Disclosure Programs for remote sellers.

For example, for California, the statute of limitations for out-of-state retailers who failed to file a return or report or pay the tax or amount due in three years.

Time limits

The average time limit is three years. It differs from country to country from 1 year to 4 years maximum.

Penalty for late registration

There are fines and penalties for late registration.
But in many cases, you can get relief or a discount for late registration.  To seek relief of penalty, a written request which sets forth the facts regarding why the late filing or late payment occurred must be made.

For example, in California (US) the retailer can get relief from interest and penalties when all sales were via a marketplace and the marketplace stored the retailer’s inventory in California.