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SmartWeb Help | CMS & Shop

4.10.3. VAT on gift cards (vouchers)

 

Introduction

On July 1st, 2019 the EUís new rules regarding VAT on gift cards (vouchers) come into force. This means that you, as a webshop owner, must decide whether you should charge VAT when selling gift cards. The European Union has supplied a set of rules for this, which we will briefly review. However, please be aware that this is an introduction and that the rules should be reviewed on the respective pages at SKAT (which we have linked to at the bottom of the article), and in consultation with your own advisor/accountant, so you can make the right decision for your business.

 

Previous rules

Following previous practice in Denmark, the sale of gift cards is traditionally not regarded as a taxable sale. This means that when a webshop sells a gift card on the basis of the previous rules, VAT is settled only at the time of redemption and the webshop does not have to settle VAT on gift cards that are not redeemed.

 

New rules

The new rules divide gift cards into two categories:

  1. One-purpose gift cards –gift cards that can only be used for taxable goods/services in Denmark

    • The country where the goods/services for which the gift card is redeemable are known at the time of purchase
    • The VAT rate is known at the time of purchase


    In practice: Sales tax must be settled at the time of sale –but not at the time of redemption.

    Examples:
    • Gift cards for a webshop selling overnight stays at the Inn/hotel etc., located in Denmark
    • Gift cards for a webshop selling goods subject to VAT doing business only in Denmark


    Typical example of a Danish webshop: If you sell physical products in your webshop, with a normal Danish VAT of 25% of the price of the product, to a customer in Denmark, VAT must be charged at the time of sale (i.e. when the customer buys the gift card) and not at the time of redemption (When the gift card is redeemed on an order). This is in contrast to the previous rules, where VAT fell upon redemption of the gift card, considering the above sales situation. As soon as other delivery countries and VAT rates (e.g. no VAT on sales of second-hand products, etc.) are involved, the above rule does not apply and you should review the rules for multiple-purpose gift cards, which we review in section 2.

  2. Multi-purpose gift cards –gift cards that can be redeemed in several countries or can be used to purchase both taxable and VAT-free goods/services in Denmark

    • All gift cards other than those defined in point 1)


    In practice: VAT must be charged at the time of redemption, but not at the time of sale.

    Examples:
    • Gift cards for a webshop, where you can pay for both taxable and non-taxable goods/services
    • Gift cards for a Webshop selling overnight stays in hotels and other locations that have sites in several countries
    • Gift cards for a webshop selling goods subject to VAT doing business in several countries

 

Old gift cards

For gift cards issued before the new rules enter into force, companies will continue to settle VAT only when the gift card is redeemed –this is done automatically in SmartWeb, as the VAT settings follow each individual gift card. In other words, old gift cards will be redeemed with the VAT settings they had at the time of sale.

 

Gift card accounting

Gift cards issued under the new rules are considered a commodity and not a means of payment, as was the case under the old rules. To address this, gift cards must be marked with a unique ID that is visible on the invoice when purchasing the gift card. The unique ID must also appear when redeeming the gift card. This is required to follow both the sale and redemption of the individual gift card. According to the new rules, we have ensured that the unique ID of the gift card is visible in the sections of SmartWeb where required.

 

Setting up VAT on gift cards in SmartWeb

You need to be aware of the new VAT-rules when creating a new gift card. To create gift cards, go to Online store > Product catalogue > and click the "Create Product" button. Once you have given your gift card a title, the Type field must be set. Here you choose "gift card that triggers discount code":

The description and product categories etc. follows the normal rules for creating products.

Note: When a gift card is created, it is now possible to limit which language layers it can be redeemed on. This may be relevant to your webshop if you sell gift cards in several countries, based on the new VAT rules. Gift cards that trigger a discount code are generated when the order status of the order on which the gift card was ordered, is changed to the order status which trigger the discount code (the default setting for this is the order status "Order sent"). You will then be able to see the discount code and any Language layer restrictions for the given gift card under Online store > Discount codes/Gift Cards.

In other words, if you distinguish between the gift card that was sold and the discount code it triggers, the language layer restrictions of the created gift card product will follow the discount code, which may affect how you set up VAT on your gift cards.

 

One-purpose Gift cards: VAT must be charged at the time of sale. As a starting point, the gift card uses the standard sales tax in the shop, which is determined by the shop's default delivery country. You should therefore be aware of how your sales tax is set up in the shop. You can read more about delivery countries and VAT here.

If you use VAT rates other than normal VAT on your default delivery country, you can create a VAT group specifically for your gift card so that you adhere to the rules for gift cards for one purpose. The VAT group is placed on the gift card, under the Prices tab:

Multi-purpose Gift cards: VAT must be charged at the time of redemption. This requires you to create a VAT group with 0% and add it to your gift card, under the Prices tab:

 

Related links (in Danish)