The EU new VAT e-commerce rules are in effect from July 1’ 21 after years of discussions and debates. The Eurozone is a major trading hub, its share of contribution to world trade stands around 15%. Along with major trading partners the US and China, the EU plays a crucial role for overall economic development in the region.
The rationale behind the e-commerce package is to create a conducive environment for the present situation and flexibility to the future demands.
Through this package, it aims to
- promote a fair trade play for all traders operating within and outside the EU
- simplifies the selling process for online sale
- brings all the suppliers into the tax regime including online marketplaces like Amazon etc
With these new rules the trading community needs to change its practices from the old rules. Before that, a thorough analysis of the laws is essential. Let us understand at what levels the preparation is done.
Preparation done by firms for the adaptation of the EU new rules and regulations :
1. Apply the correct tax rate:
The EU, though functioning as a bloc, is yet to finalize an uniform tax regime. With the new rule in place, all the countries follow a different classification for identical products.
The first and foremost step in the process of tax payment is to be well aware of
- Taxability of the products selling at each market across Europe
- How the same product is classified across Europe
- Tax rate applied as per each country’s classification of the same product traded across the EU
If we are updated with the correct tax rates, it becomes earlier and simpler for calculating the correct tax. In case if the tax rates are overstated to the customer the seller will damage his goodwill or understating to the tax authorities will lead to penalization.
2. Apply the correct price for the goods:
A non-EU based seller needs to have an understanding that the EU tax rate slab fluctuates within the range of 17% to 27%.
If they opt for registration under the IOSS scheme to sell across the EU. Then the sales VAT is borne by the customer at their present residency at the time of sale. For a timely delivery the enclosed invoice attached to the order needs to calculate the correct price as per the country.
The pricing strategy is predominantly based according to the countries of sales. The price needs to reflect a combination of both competitive advantage and healthy returns to the seller.
3. Apply for the right portal for VAT reporting:
Non-EU based sellers have a practice to reach out customers through multiple sources. This may call for multiple registrations depending upon the nature of business activities. Therefore, an understanding which transactions need reporting and the type of registration is essential.
Tax authorities will penalize if there is a lapse in reporting or double reporting is a loss of money to the seller. Therefore, it is necessary to register ahead in countries where a sizable percentage of selling takes place.
Preparation done by firms for the adaptation in its business practices:
1. Calculate your firms’ yearly sales turnover at European Union:
The new EU VAT launched from July 1’ 21 affects all firms conducting business in the Eurozone. For firms operating outside the EZ, it is necessary to know exactly their yearly sales figures for evaluation purposes.
Due to change in policies, firms incur additional costs in the form of direct tax settlements, administration expenses etc.
Firms need to analyze if conducting business in the EU is a profitable venture. If there is a gain, they need to proceed to adhere to the new laws. If not, they need to look for alternative sources for generating revenue.
2. Choose the right option for making VAT payment:
If non-based EU firms prefer to pursue their operations in the EU, they can opt for any of the following alternatives suitable for them.
- Selling directly to the customers: register for VAT in the EU country offering more business
- Selling through Amazon, eBay: the VAT payment is done by online marketplaces on behalf of the firm
- Delivery of goods through Postal Services: the VAT payment and customs clearance done by the Postal Department on behalf of the firm
3. Choose the correct software application:
If VAT is charged to the customer at the point of sale, it is necessary to have an updated software version or new software giving us the flexibility for setting the tax and price rates based on the country of sale.
If online marketplaces like Amazon are used, then registering earlier is advisable.
The success of any firm is influenced by how well our preparation is in adhering to the new rules. For that reason, it calls for some form of advisory services to regulate your workflow. We have build our product salesvat keeping in mind the requirements of the present and future. To know more just dial us, we are always within your reach 24X7.
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