EU VAT changes for ecommerce July 2021. The EU introduced a new eCommerce VAT package that came into effect on the 1st of July 2021. Understanding your VAT requirements is already a tough task, especially if you specialise in cross-border eCommerce. Unfortunately, however, it’s about to become even more complex.
Good news, the UK government has introduced a SME Brexit Support Fund to help small and medium-sized businesses like yours if you are new to importing or exporting.
Why Are These Changes to VAT Being Implemented in the EU?
New VAT rules for online business-to-consumer (B2C) sales of goods and services are going into effect throughout the European Union, to accommodate the growth of digital and cross-border commerce that takes place online and often on large marketplaces.
The original EU indirect tax rules cannot keep up with the rapid growth of E-commerce. The result has been unfair competition from overseas sellers who fail to charge VAT on goods sold to EU consumers. An estimated €5 billion is lost annually due to the complex rules and non- compliance of cross-border digital sales of goods.
The EU is introducing changes that will simplify VAT compliance for E-commerce companies so that they are not subject to double taxation, as well as ensuring level ground for EU sellers and traders located overseas.
A significant goal of the new rules is to ensure that VAT is paid where consumers are located, so local businesses will no longer be penalised. Second, a set of administrative simplifications will be applied in order to reduce the burden on businesses. Thirdly, online marketplaces will have a greater role in charging and collecting VAT on specific scenarios involving EU consumers.
While the authorities hope that this will eventually make the process of reporting and paying VAT easier, it will obviously lead to short-term disruption—so it’s crucial that you understand what these changes are, how they’ll affect you in terms of tax liabilities and how your operations will be affected by these new frameworks in the EU and UK, and where you can turn to for support.
What Are The New EU VAT Changes?
Right, let’s examine the new EU VAT rules and outline who’s impacted by these changes.
- No More Distance Selling Thresholds for Online Sellers Shipping Within the EU
- One Stop Shop (OSS) VAT Return for E-commerce
- Importing Low-Value Goods into the EU will be subject to VAT
- Online Marketplaces Will Become Responsible for Charging and Collecting VAT on Behalf of Sellers in Specific Scenarios
No More Distance Selling Thresholds for Online Sellers Shipping Within the EU
Currently, intra-EU B2C sales are subject to VAT in the country where the goods depart from. Well, up until a certain point—this is known as the local threshold. In some member states this threshold will be €35,000, whereas in others, it might be as high as €100,00.
Once the value of the goods that you sell in a particular state exceeds this threshold, you then have to register for VAT, charge the member state’s VAT on arrival and remit the collected VAT to the member state’s tax authorities.
After 1st July 2021, there will be no more distance selling thresholds—meaning all goods will be taxed in the member state itself upon arrival. However, if you follow the One-Stop-Shop (OSS) scheme then you can avoid having to register for VAT in each EU member state. You can instead report all B2C sales via a quarterly return to one single member state’s tax authorities, though note: the OSS scheme doesn’t apply to B2B supplies.
Lastly, EU businesses that are only established in a single member state can opt to be taxed in the member state of departure provided the total value of their B2C sales doesn’t exceed €100,000.
One Stop Shop (OSS) VAT Return for E-commerce
The current Mini One-Stop-Shop (MOSS) will be replaced by a far more comprehensive, wide-ranging OSS—making it easier to account for VAT on imports/exports.
Under the new rules, all VAT reporting can be completed with a single VAT return to just one member state’s tax authority. Sellers will still charge the customer country’s VAT but they will just have to report this to any one state’s tax authority—these authorities will then handle forwarding VAT payments on to the necessary member states of consumption (i.e. other states in which the company has sold its goods).
You can still choose to register for VAT in each member state—but if you don’t have to then it makes no sense to unnecessarily incur this extra paperwork.
Low-value Goods Into The EU Will Also Be Subject To VAT
Currently, goods with a value below EUR22 are exempt from VAT when it’s imported into the EU. This exemption has led to an increase in fraudulent transactions with the boom of e-commerce. EU tax administrations have lost a significant amount of VAT revenue due to unfair practices. To put a stop to this, the EU is removing this VAT exemption at importation.
All commercial goods imported into the EU will become subject to VAT once the new rules are in effect. From July 1st 2021 onwards, any goods that you import will be subject to VAT unless you have decided to use the Import One-Stop-Shop (IOSS).
It’s essentially a new scheme that helps organisations report the sales of low-value goods that they imported from outside the EU. It allows importers to immediately charge VAT at the point-of-sale (POS), meaning the customer picks up the bill, and they then declare this via monthly IOSS returns.
If you operate in an EU member state then simply sign up by contacting your local tax authority. If you’re located outside the EU, however, then you’ll need to register in the member state where your intermediary is based.
Online Marketplaces Will Become Responsible for Charging and Collecting VAT on Behalf of Sellers in Specific Scenarios
If you meet either of the following two requirements, keep on reading:
- You’re a non-EU business that ships within the EU and/or directly imports low-value goods from non-EU countries to customers within the EU;
- You’re an EU business that imports low-value goods from non-EU states (aka third countries) and sells them directly to EU-based customers.
First, your platforms may now be considered suppliers if they are deemed to have facilitated the sale (i.e. they brought you in contact with your customers). By being deemed a supplier, they will therefore have to also charge and report VAT.
However, they will only be deemed suppliers if:
- Goods located outside the EU, and valued under €150, are imported and shipped directly to EU-based consumers;
- Goods located within the EU but sold by a non-EU seller (regardless of their value) are sold from within the EU to customers also located in the EU.
If either of these conditions is met then the platform has to charge VAT from its customers and report this to the authorities. The actual seller cannot themselves charge customers VAT (as the platform is now deemed to be the supplier).
You therefore need to:
- Clearly demarcate sales made from your own channels (i.e. your website) and those made through online marketplace platforms;
- Understand—and put into place—any necessary changes when it comes to your transactions’ mapping, internal IT system, and the invoices and contracts that you produce.
- Make sure you contact the marketplaces you sell goods on since they may be considered your deemed supplier for VAT purposes.
We hope you enjoyed this article, intended to help improve our client’s profitability. It reflects the care SwiftERM offer. If you haven’t already done so, then please enjoy a FREE month’s trial of our predictive personalisation software on your site, and let us know what you think. Here
Other articles of interest below:
(Index to all articles here)