New EU VAT rules are being introduced July 1, 2021, the aim of these changes is to provide a fairer environment for taxation so that EU and non-EU businesses can compete on equal footing.
Ecommerce has never been more central to how businesses reach customers and sell goods and services than it is today. Although selling online was rapidly increasing pre-pandemic, businesses of all sizes have since had to consider and action the translation of their brand to the digital market.
Selling online gives businesses more expansive opportunities to grow their customer base, extend awareness and increase profitability. Be it through a marketplace or a website of their own, ecommerce merchants can reach consumers all over the world and sell their goods internationally with ease.
Undoubtedly the prospect of expanding business across borders is exciting for online sellers, but what needs to be considered is the essential taxation rules and regulations that must be followed to do this successfully.
This year EU VAT is changing for ecommerce sellers and understanding how this may affect your online business is important to avoid hefty penalties. Planning is essential, so we’re going to take you the current rules, what’s changing and how you and your business can prepare for the upcoming shift in European VAT.
What are the current rules?
You may already be aware of the current VAT rules for ecommerce but reiterating these will help you get a better idea of what areas the changes are going to target.
Distance Selling Thresholds
Currently Distance Selling Thresholds are decided by each EU member state and can range from EUR35,000 to 100,000. Businesses are required to collect VAT in the country of departure of the goods until they breach a country specific threshold where their customers are located. After doing so, sellers would need to VAT register in this country and apply their local tax rate to each sale.
If you hold stock in any EU member state a VAT registration obligation will be triggered regardless of a Distance Selling Threshold being breached.
Low Value Consignment Relief
For shipments that amount to a total of EUR22, these would come under the Low Value Consignment Relief, so VAT would not be due on these imported goods.
What will change with the EU VAT Package?
MOSS to become OSS
For businesses that pass this pan-EU threshold and have customers in multiple countries, they previously benefitted from the MOSS (Mini One Stop Shop) Scheme. This was intended to lighten the burden of VAT registering in several EU countries. MOSS is being extended past July 1, into OSS (One Stop Shop) which will offer ecommerce the same service, allowing them to account and pay for their cross border intra-EU sales through a single, quarterly electronic VAT return.
OSS will be split into two factions, namely Union OSS and Non-Union OSS. Union OSS will cover intra-EU distance sales of goods that are already located within the EU at point of sale by both EU and non-EU businesses, as well as cross-border B2C supplies of services by EU companies. Non-Union OSS will encompass B2C supplies of services by non-EU businesses.
In practice, the process of OSS is:
- Register online where you are established (EU businesses) or in a country where you hold stock (non-EU businesses)
- Use OSS to report eligible supplies, charging local VAT rates to where your customers are based on these
- Provide a single quarterly VAT return to the member state in which you are registered
- The member state then sorts and sends the correct VAT amounts to the other member states where you also sell
The new OSS scheme is optional and the alternative would be to VAT register in each country where your end customers are based.
Introduction of IOSS
IOSS (Import One Stop Shop) is one of these simplifications being made available to businesses in July 2021. This scheme will require sellers who are importing their goods to EU customers, to charge VAT where customers are located at the point of sale. This way, ecommerce businesses will only need to register in one EU country and report the VAT collected to that country in a single monthly electronic return.
The IOSS Scheme only covers consignments of up to EUR150, if a consignment value goes above this threshold, normal customs procedures apply and VAT will be due upon importation.
In practice, the process of IOSS is:
- Register for IOSS and choose a member state in which you would like to be registered – most EU countries require non-EU businesses to appoint an intermediary for this purpose. EU established businesses must register in the country of establishment
- Charge local rates of VAT at point of sale based on where your customers are if your consignment value remains below EUR150
- Report your collected VAT via a monthly IOSS return to the member state in which you are registered through an intermediary, or, established
IOSS is an optional scheme where the alternative is to use the Special Arrangement for postal operators where they collect VAT at the point of importation from the customer.
Low Value Consignment Relief Abolished
Low Value Consignment Relief will also be abolished, requiring businesses to charge VAT on all commercial goods imported into the EU. This new obligation may result in increased VAT accounting for online sellers importing goods, however the IOSS Scheme has been introduced to provide simplifications to aid small businesses affect by this.
Distance Selling Thresholds Abolished
Distance Selling Thresholds are going to be abolished. From 1 July 2021, this will be replaced by a single, EU wide threshold of EUR10,000. This new threshold is only applicable to EU based businesses who have one country of establishment and sell goods from one-EU country.
If you are a small business and do not have annual sales exceeding EUR10,000, you will still be required to register for VAT domestically and charge this VAT amount on cross-border supplies.
Marketplace liability changes
Another change which may benefit small businesses is the shift of VAT liability to marketplaces in certain scenarios. Marketplaces will be required to collect and charge VAT in these circumstances:
- When distance sales of imported goods made on their platform amount to no more than EUR150
- When goods are sold to EU customers from stock that is stored within the EU by a non-EU based business, irrespective of the value of goods
Note that by holding your stock in an EU country, it still triggers a local VAT registration, however, you will be making a VAT exempt sale to the marketplace in the case they are considered the ‘deemed supplier’.
How might these changes affect my business?
It’s important that, when selling cross-border, your business is staying compliant. For businesses that intend on expanding internationally, your B2C sales must have the appropriate VAT rates applied to ensure your reporting and returns are as straightforward as possible.
The 2021 EU VAT changes should make running your business easier and help to cut down the time you spend on tax administration so that you can focus on global expansion. It’s important to remember that while these changes will simplify your reporting requirements, you will still need to register for VAT in each country where your stock is held.
How can I get prepared?
OGOship´s partner, SimplyVAT.com can support your business to review your supply chain and know if you are liable for VAT registration and reporting, now, and when the changes come into effect. Their expert Consultants and Client Managers can help guide you through the schemes that are being introduced and determine if these are suitable for your business. They can then also submit your application for OSS or IOSS if they are deemed beneficial to you.
They can assist you in registering or de-registering if they are no longer necessary for your business and offer VAT rate consultancy so you understand exactly what amounts you should be applying to your products, for your customers.
This blog is by Simply VAT, OGOship's partner helping e-commerce businesses with their VAT compliance.
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