The rollout of the new ecommerce VAT changes across the European Union will take place July 01, 2021.
VAT stands for value-added tax. The tax is a consumption tax placed on the value added to goods and services in the European Union.
Designed to simplify the collection, reporting and payment of VAT, this package will introduce new schemes such as OSS (the One-Stop-Shop) and IOSS (the Import One-Stop-Shop) and see the end of some previous legislation you may be familiar with. We want to help businesses to prepare for these incoming reforms so that they can make the most of the new ecommerce VAT package arriving in 2021.
One of the biggest changes to come from the new VAT package will be the opportunity for online sellers to VAT register in one EU Member State for the declaration and payment of VAT on all sales of goods and services within the EU. To simplify the process for both online sellers and tax authorities, businesses will be able to report and pay any VAT owed through one quarterly return.
However, it’s important to note that if you are holding goods within an EU country, a local VAT registration will still be required. Sellers who currently operate on models such as the Amazon FBA Pan-EU scheme would still need registrations in those countries where their stock is held in fulfillment warehouses.
OSS (the One-Stop-Shop): The OSS scheme will include two OSS portals; the Union OSS and the Non-Union OSS. These portals will be used by businesses to comply with their VAT obligations when selling online. Which portal you will require will be determined by where your business operates.
The Union OSS: This portal will be available to EU and non-EU based businesses selling physical goods. Each EU Member State will have an OSS portal that you can use to declare and pay the VAT owed on your sales throughout the European Union.
The Non-Union OSS: This is the portal that will be available to all businesses that operate outside of the EU selling B2C services, including telecommunication, broadcasting and electronic services. Opting into this scheme may require you to appoint an EU-based intermediary so this would need to be factored into your budget.
Online sellers currently need to monitor distance selling thresholds to sell goods cross-border in the EU to determine if they must apply for VAT registrations. This regime allowed businesses to sell to EU Member States where they were not established without the need for a local VAT registration as long as those annual sales remained below the set thresholds (in most cases EUR 35,000). Once a threshold was breached, a VAT registration would then be required.
Under the new VAT package, these distance selling thresholds will be replaced with an EU-wide threshold of EUR 10,000. This will mean that if your cross-border annual sales go over the EUR 10,000 mark, you will be required to start charging and collecting VAT where your EU customers are located.
Why is this new threshold being introduced? This new rule is being introduced to support the change from applying VAT in the country of sale to applying VAT where your customer is based. Businesses selling to EU consumers will have to keep a very close eye on where those sales are being made as you will now be required to charge your customers the VAT rates of their home state -as opposed to applying the VAT rate of your country of establishment- as soon as the new EU-wide threshold is breached.
Although this might seem more complicated than the current legislation, these transactions could be reported under one filing to one tax authority which will hopefully reduce the overall administrative burden.
Another simplification for ecommerce sellers will be the end to VAT exemption on imported consignments valued at EUR 22 or under. For UK sellers this will be familiar as the Low Value Consignment Relief Scheme was abolished at the start of the year. As of July 2021, all goods sold to the EU will need to have the correct VAT rate applied according to the country in which the customers are.
In compliance with the new rules, this will be the online portal businesses can choose to use to report the VAT owed on all distance sales of goods with a value not exceeding EUR150 imported into the EU as of 01 July 2021.
Previously when goods were sold through marketplaces, sellers would be responsible for applying VAT to each international sale. This has often caused confusion among sellers, so to simplify the situation, from the 1st of July the EU is shifting the burden to the marketplaces who will need to charge customers the correct VAT amount at the point of sale in certain scenarios.
For non-EU businesses holding stock within the EU to sell throughout, this will still require you to VAT register in the country where this stock is held, as well as record each marketplace sale as a zero-rated supply to the marketplace you use.
In line with the implementation of the new measures, the European Commission has developed two new schemes. These include online portals businesses will have the option to use to declare and pay the VAT owed in the EU.
While the new ecommerce VAT package is set to simplify the current legislation, it will not be without its complications. When it comes to looking after your business, it’s always best to speak to a specialist like SimplyVAT.com to look after your OSS, IOSS or local VAT obligations.
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