The new value-added tax (VAT) rules for e-commerce sales started functioning from July 1’ 2021. These rules came into effect after greater time spent for analysis, interpretation and detailing. One of the main objectives sought is to bring all parties involved for taxation diluting any form of border negotiations. Though the initial stages see some form of disharmony to understand and regulate, in the long run, the balance is reached for the state, buyer and seller.
Many discussions and articles came across through both the digital and print media, yet there is a lack of understanding due to misinterpretation. For additional reading , “Parties benefiting through the new EU VAT-E commerce rules”.
It is necessary to highlight some areas where clarity is required.
1. All E-commerce sellers comes within the territory of the new rules:
The introduction of the new VAT package is to bring all EU and non-EU traders under the territory of uniform taxation. However, the scope of the new VAT is confined to business-to-consumers (B2C) conditions.
The new regulations impacts only those sellers who
- Trades in goods and services to customers in the EU
- Directly or indirectly involved in the transfer of goods to the EU
However, those sellers are spared if their customers already have VAT-registered businesses or employ their own modes of transport to transfer the merchandise, the new policies have no impact.
2. Compulsory registration under One-Stop Shop (OSS):
The new e-trade VAT package introduced the sellers refined One-Stop Shop schemes:
- The EU Scheme b. The non-EU scheme c. Import (IOSS) scheme
The EU scheme and Non-EU scheme gives sellers the opportunity for VAT registration in one EU country where they predominantly conduct business. With this common registered number they can conduct their operations to the entire EU without hardships instead of having multiple registration.
The Import (IOSS) scheme relieves sellers from importing goods VAT free. Instead the seller is authorized to charge VAT on the customer’s residential country at the time of sale. The VAT rate changes as per the country, the classification of the product in the country.
However, all the above mentioned three schemes are optional.
- The seller can deduct input VAT in his OSS return
- The seller prefers local registration instead of the OSS scheme
3. Euro Union scheme is application for EU businesses only:
It is a misconstrued notion that only EU firms can utilize the Euro Union scheme, whereas non-Euro Union scheme is exclusively for sellers present outside the Eurozone.
In reality, an non-EU seller can avail all the three schemes for conducting his business transactions in the EU.
EU scheme – if the non-EU seller is established or having a representative in the EU. He supplies goods within the territories of countries established in the Union.
- EU scheme – if the non-EU seller is established or having a representative in the EU. He supplies goods within the territories of countries established in the Union
- Non-EU scheme – his business is limited only to conducting services
- OSS scheme – for the sale of goods imported from third countries
4. Non-requirement of tax representative for Non-EU based sellers:
There is a confusion prevailing if a non-EU based seller needs a tax representative stationed in the EU. Whether it is needed depends upon the way business is conducted.
- Digital services: Tax representation is not required, as they can apply directly under the non-EU scheme. VAT registration is done for their country of choice and direct payment is done to the tax authorities
- Selling goods: Tax representation is required, and they need to apply under either the EU scheme and IOSS scheme. The Tax representative is responsible for fulfilling the VAT obligations on behalf of the seller
- Non-EU sellers establish business within the EU, and have no requirement for tax representation. Further, if EU has an agreement of mutual assistance for the recovery of VAT (eg. Norway, UK etc.). If the seller starts shipping goods for other countries then tax representation is required
5. Import scheme applies to consignment below Euros 150:
Firstly a ‘Consignment’ is a package containing orders of multiple goods packed and dispatched to the same customer.
Conditions for availing Import scheme:
- If the combined prices of items in the consignment fall below Euro 150, then the seller can avail the import scheme
- If the combined prices of items in the consignment fall above Euro 150, then the seller cannot avail the import scheme
6. EU VAT Number is applicable across for all Special Schemes:
Every non-EU seller should have a clear understanding that one EU VAT number cannot be applied across all schemes.
- EU Scheme – is the VAT number used for intra-EU selling.
- Non-EU scheme – will be allocated a number having format EU xxxyyyyyz
- IOSS Scheme – will be allocated a number having format IMxxxyyyyz
7. Mandatory tax invoicing necessary for conducting E-commerce sales:
Invoicing digital transactions is a common norm, however, there is no regulatory compulsion for issuance. If the seller chooses to issue invoices, then
- Under the EU scheme, the rules of the country where VAT registration is done applies
- Seller not using the EU scheme, yet conducts intra European transactions, the invoicing is done as per the rules of the customer’s country
8. One-Stop Shop scheme does not cover Northern Ireland:
After Brexit, the EU VAT rules will apply to sales of goods between the EU and Northern Ireland. This follows a dual VAT regime for
- Non-EU / import scheme – for the sale of services or ship goods from other parts of the world to EU customers
- EU scheme – for the sales of goods to EU customers
Every minute business transactions come under the preview of government regulations. This tiresome but mandatory process needs time, attention to details and complying. We have launched our product salesvat.com to entrust us with your tiresome tasks. Through our product you can take a backseat and we will take care of the rest.
Disclaimer: The views and opinions expressed in our blogs and articles are for information purpose only. Our blogs and articles do not constitute advice and should not be relied upon for making any of the business decisions. Please get in touch with your accountant or seek professional help.eCommerce sellersEU businessesEU VAT regulationnew VAT rulesOne-Stop-ShopOSSVAT threshold