Value Added Tax (VAT) is a kind of consumption tax.
- It is charged when value is added to the goods or services at every point of the supply chain up to the point of sale to the consumer.
- Sellers need to include VAT in the price of the goods or services.
The present EU VAT e-commerce rule was established much before the digital age in 1993. In the era of cross border internet shopping, the prevailing rules have become obsolete. The parties involved (traders, consumers and administration bodies) are finding the old rules unfavorable to their requirements.
The pandemic surged digital sales and made it necessary for the European Commission to re-adjust EU VAT rules. The rules enacted by the EU will come into force starting from July1, 2021.
What are the components of the new e-commerce VAT?
- To foster growth and expansion within the European Union
- Allow innovation and proper utilization of technology in conducting online business
- Making a ground for fairer competition between EU and non-EU states
- Fetch more revenue to the EU administration by closing the loopholes in the present EU VAT rules
- Assures the exact amount of VAT is paid to the right person at the right place
- Introducing a ‘Digital Single Market’ for cutting compliance costs in order for small businesses to thrive
- Benefiting EU consumers by providing them price transparency
- Guarantees no parties will evade from VAT payment through fraudulent practices
What benefits it makes to the parties involved?
Benefit to the Sellers:
1. Incentive to establish company in EU by Non-EU sellers:
Sellers either from EU or non-EU states, in order to benefit from the new VAT scheme be aware of
- The place from where the ordered product is dispatched
- The place of residence of the customer in the EU
- This information helps the sellers to use the exact digital form for processing VAT payment
This gave incentive for any company based outside the EU, to reconsider to form a company within the EU to get full benefit from the scheme.
2. Time constraint eliminated during customs clearance:
IOSS registered Seller for goods up to €150 :
- Product gets cleared immediately at the customs counter.
- Only the valid registered number is verified by the customs authorities and dispatched to the customer.
Non-IOSS registered Seller:
- All the formalities at the customs desk (e.g. duty payment, VAT) will take place.
- It is conducted in the EU member state where the customer is located.
- The central clearance option will no longer be valid.
3. Uniformity in the process within the EU states:
- One single declaration, payment and collection of VAT for all distance sales.
- Tax authorities redistribute VAT to the EU countries where VAT is owed.
- EU companies must register where they are established.
- OSS registered sellers in one EU state, can conduct business in the entire EU states.
- Non-EU companies must register under a non-union scheme and elect a country for IOSS registration for goods within €150.
4. Introducing a new €10,000 VAT threshold :
- Helps SMEs from complexity in filing VAT
- Sales below the threshold, VAT can be paid from the country of the seller, rather than where the customer is located
- Provides sellers an opportunity to operate online
Benefit to the consumers:
1. Rapid and timely delivery:
IOSS registered goods get the benefit from getting faster customs clearance. The unique registration number brings standardization to the system. Therefore, their products are delivered at no time, compared to non-registered suppliers.
2. Stress-free transactions:
Consumes are relieved from the hassle of clearing customs, VAT etc., when ordering through IOSS registered goods. Their transactions are inclusive of all charges.
3. Exact amount for payment:
Consumes are well aware of the total price they are charged (inclusive of VAT and custom) for the product they are ordering. IOSS registered webshops advertise the product with the total price.
Benefit to the EU members:
Protecting the rights of EU state members :
- Protected against losses in their VAT revenues
- E-commerce will flourish and conduct business with ease, due to reduced administration procedures
- Helps tax evasion, as online marketplaces are responsible for VAT payment if a non-EU trader sells to an EU consumer, via their interface
- Promotes sustainable competitiveness within and outside the EU
Our product salesvat.com is an outcome for helping all the players involved at all stages of VAT collection. Needless to say, the role you are executing, we are here to share your burden and bring an easier solution to your business needs.Cross border transactioneCommerce businessEU VATEU VAT E-commerce rulesEU VAT eCommerce Package