To facilitate and simplify VAT obligations for eCommerce sellers, the European Commission has introduced significant changes to VAT rules which will take effect on 1st July, 2021. The new EU eCommerce VAT rules will impact any business that is involved in selling goods to consumers in the EU – both sale and transport of goods. In this article, let’s have an overview of the new EU eCommerce VAT rules and how it affects online sellers and market places.
The European Commission proposed new VAT rules for eCommerce businesses/online traders/marketplaces in two stages:
- Mini One Stop Shop (MOSS)
- The EU VAT e-commerce package
1. Mini One Stop Shop (MOSS) scheme:
The Mini-One-Stop-Shop (MOSS) scheme was introduced back in 2015. It allows businesses (suppliers) to declare and pay VAT on all supplies of telecommunication, broadcasting and electronic services in the European Member States. All businesses registered under MOSS should account for VAT due on all supplies of TBE services. They must electronically submit quarterly MOSS returns and make payment to the tax authorities in their Member State of Identification.
2. The EU VAT eCommerce package:
The EU VAT eCommerce package introduces 3 new VAT rules or schemes which will come into effect on 1st July 2021 (postponed from 1st January 2021). The new rules will introduce significant changes on:
- Cross border supplies by EU sellers
- Supplies within the EU by non-EU sellers
- How VAT is collected on imports into the EU
What does the EU VAT eCommerce package include?
- The One-Stop-Shop (EU Intra-community) – B2C supply/sales within the EU
- The Import-One-Stop-Shop – B2C supply/sales from a non-EU country to EU customers
- Online marketplaces (deemed suppliers, online portals)
1. The One-Stop-Shop: Single EU VAT return:
With the launch of OSS, the existing distance selling threshold scheme will be withdrawn. Instead, eCommerce sellers and online retailers selling goods to customers in the EU Member State can opt for OSS scheme (an extension of MOSS) – which allows VAT registration, declaration, filing and payment under a single online portal.
What’s changing: As part of the new OSS, EU taxpayers (businesses) who supply goods or services to customers in pan-EU nations are not required to register for VAT in different EU Member States. Instead EU businesses can register for OSS schemes in the country of their establishment by submitting an online application form under the Union scheme. They then have to electronically submit quarterly OSS returns and make payment to the responsible tax authorities.
2. The Import-One-Stop-Shop:
With the launch of the Import-One-Stop-Shop scheme, the €22 VAT exemption on imported goods for EU customers will be withdrawn – instead VAT will be applied at the point-of-sale for goods not exceeding €150. If the value of goods is above €150, then the normal distance selling threshold rules apply. This is called the IOSS scheme under non-union registration – specific for non-EU established businesses. The new scheme simplifies the custom declaration process and facilitates fair trade between the EU and non-EU taxable businesses.
What’s changing: Non-EU taxable sellers looking to register for Import-One-Stop-Shop can do so in any of the EU Member States (Member State of Identification). They can submit an online application form to the respective tax authorities under the Non-Union scheme. Once verified, the tax authorities of their nominated EU Member State will issue an individual VAT Identification Number (EU ID) – to be used for VAT and tax-related obligations. Businesses registered under IOSS should electronically submit IOSS returns (monthly) and make payment to the responsible tax authorities in their nominated EU Member State.
3. Online marketplaces:
This is one other scheme introduced under EU VAT eCommerce package – specific to businesses facilitating supply of goods through online electronic interfaces (eBay, Amazon and other online sellers). Even though they are not the actual supplier of goods, these online marketplaces will have to declare and pay VAT for receiving and supplying goods themselves.
What’s changing: With effect from 1st July, 2021, online marketplaces will be obliged to collect VAT on all goods imported into the EU, with a value of up to €150. Under this scheme, neither carrier nor seller can collect VAT from EU customers. Instead the respective online marketplace facilitating the sale (e.g., eBay, Amazon, etc) will collect VAT from customers (at the point of sale) and remit it to the responsible tax authorities – based on the country of delivery. Likewise, goods of any value sold by a non-EU seller, from inventory stored in any of the EU Member States, will still have EU VAT obligations.
What should you do next as an eCommerce entrepreneur?
The new EU VAT eCommerce package was created with a motive to;
- Simplify VAT obligations
- Reduce compliance costs
- Ensure seamless cross-border trade
- Ensure fair competition between EU and non-EU sellers
- Close VAT gap fraud
But, the impact of the new EU VAT e-commerce rules depends on individual businesses and how they conduct trading. For instance VAT obligations will be simplified for businesses making high value intra-EU distance sales to pan-EU nations. On the other hand, the new VAT reporting obligations get a little intricate for internet platforms and businesses selling low value goods into the EU.
Nevertheless, tax-payers should prepare for the new EU eCommerce VAT directives as there is not much time left. Businesses should consider adjusting their existing accounting systems and implement software to monitor VAT rates and adjust sales prices in order to achieve optimal VAT and tax compliance.
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