New VAT rules for the e-commerce sector as of 2021
Some time ago, the EU legislator has adopted new VAT rules in relation to international trade and e-commerce. In this article, we discuss the most important changes – which will enter into effect as of January 1, 2021. In addition, we briefly look back on some VAT rules which already became effective as of January 1, 2019.
Changes as of January 1, 2019
Some minor changes to the VAT system already entered into effect as of January 1, 2019. In particular, these changes concern the introduction of a yearly turnover threshold for small entrepreneurs who carry out cross-border telecommunications, broadcasting or electronic services in the EU. In case their yearly turnover does not exceed € 10,000, these entrepreneurs can, under certain conditions, apply the VAT rules of the EU Member State in which they are established. Additionally, some invoicing and VAT return rules were changed.
2021: Changes for e-commerce supplies within the EU
The most important changes for e-commerce supplies will become effective as of January 1, 2021. For businesses which focus on e-commerce supplies of goods within the EU, amongst other the following will change:
- The current distance selling scheme will be altered. Currently, a business that supplies goods to final consumers in other EU Member States is often required to charge and pay VAT in the country where the transport of the goods ends. This can be the case when the business exceeds a certain yearly turnover threshold (the Netherlands, for example, has a yearly turnover threshold of € 100,000). As of January 1, 2021, the current turnover threshold will be abolished. This implies that the business is required, as from the first distance sale, to charge and pay VAT in the Member State where the transport of the goods ends.
- For small e-commerce entrepreneurs, there will be a new yearly turnover threshold of € 10,000. in case these entrepreneurs remain below this threshold and are only established in one Member State, they are allowed to charge and pay VAT in the country where the transport of the goods begins.
- Member States will offer businesses that are established within their borders to file one special VAT return for their cross-border distance sales in the EU. By making use of this so-called ‘One Stop Shop’, businesses will no longer have to file VAT returns in each of the Member States in which their distance sales are taxed. There will be specific conditions for applying the One Stop Shop scheme.
2021: Changes for e-commerce supplies from countries outside the EU
Increasingly, businesses make e-commerce supplies of goods from countries outside the EU. For these businesses, the primary changes as of January 1, 2021 include the following:
- Under certain conditions, the current VAT rules allow the application of a VAT exemption to the importation of small consignments of goods which are shipped from countries outside the EU to customers within the EU. This VAT exemption, which applies to small consignments with a value of up to € 22, will be abolished as of January 1, 2021. This implies that the importation of such small consignments will be taxed with import VAT.
- Businesses that make supplies of goods from countries outside the EU to customers inside the EU will be offered the option to make use of a One Stop Shop (OSS). This means that they have to file only one VAT return for all their distance sales from countries outside the EU. The OSS can only be used for consignments with an intrinsic value of not more than € 150. In case a business opts to make use of the OSS scheme, it is allowed, under certain conditions, to apply a VAT exemption for the importation of the goods.
- There will be a special arrangement for the levy of VAT on importation in case the OSS scheme is not used. The arrangement allows certain businesses – generally, mail or postal companies – to collect the import VAT from the person for whom the goods are destined, to subsequently report and pay that VAT by means of monthly electronic returns. This takes away the need to pay the import VAT directly at the customs border. The special arrangement has certain conditions and only applies to consignments with an intrinsic value of not more than € 150.
In addition to the above changes, the VAT system is amended on various other points. For example, there will be special obligations for businesses who facilitate distance sales via electronic interfaces such as (online) marketplaces or platforms (as of January 1, 2021). Also, four ‘Quick Fixes’ for the current intra-Community trade system will become effective as of January 1, 2020. And then there are the plans of the EU legislator to drastically overhaul the mentioned trade system in the future. The latter plan is however still in the legislative phase.
Implications for your business
In case your business is engaged in (cross-border) trade or e-commerce, it is likely that it will be affected by the upcoming changes. Our expectation is that many businesses will have to adjust their ERP-systems and operating processes (e.g. administration, invoicing) – for example because of the changed turnover thresholds. This being said, the One Stop Shop scheme may lead to a simpler and more streamlined VAT reporting and payment process. In case you believe that your business will be affected too, we advise you to contact Marisa Hut or Jayant Rakhan of the VAT & Customs Advisory team of Baker Tilly.