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Two weeks left: your checklist for the new e-commerce VAT rules
Just two more weeks until the new VAT regulations for e-commerce will enter into force (1 July 2021). A detailed overview of all the changes and the rules themselves can be found here. Although these rules are mainly aimed at simplifying and promoting trade within the European Union (EU), it is important to prepare your business for them, fully and on time. Failing to be compliant with the new rules on time may have significant consequences, both administratively and financially, and could even lead to more obligations than under the current rules.
In a nutshell, there are currently turnover thresholds for such distance sales. A VAT registration and reporting obligation only arises in an EU country when that threshold is exceeded in that particular EU country. As of 1 July 2021, the current thresholds will be abolished, and replaced by one general threshold of EUR 10,000, per year, for the whole EU (so no longer for each individual member state). However, this threshold only applies to businesses that are established in the EU. This means that businesses will be faced with VAT registrations and obligations in other EU countries sooner. However, these consequences can be avoided thanks to the introduction of the One Stop Shop system. Using the One Stop Shop return, all VAT due on distance sales to other EU countries can be reported in one single return.
Map your distance sales
It may seem obvious, but the first step which should be taken, is to map your supply chain, so you know where your goods come from, where your customers are located and to which EU countries your goods are sent. This should enable you to establish the impact of the new rules on your business, and to determine what other arrangements need to be made.
Determine whether you want to make use of the new system
The new OSS system is not mandatory. You may choose not to use the OSS system, but rather to register for VAT purposes in the usual way. You may wish to consider this if you already have one or more registrations and do not require any additional registrations. However, it is very much the question whether this really is simpler for your business, and whether that set-up will remain commercially preferable in the long run. In many cases, reporting all distance sales in a single OSS return may be less complicated, which in turn has less impact in terms of both your expenses and your administrative burden.
Make sure you register correctly and on time
If your business is established in the EU, you should register in the EU country of establishment. If your business is not established in the EU, the EU country of departure is relevant. If your non-EU business has goods held in stock in multiple EU countries, you can choose the EU country of registration for OSS.
We would like to emphasise the importance of setting the registration in motion before 1 July 2021, as the new system only has very limited retroactive applicability.
Set up your system correctly
It is crucial that you set up your system correctly. As of 1 July 2021, you will need to pay the VAT of the EU country of arrival of the goods. This means that your business will first need to determine the applicable VAT rate for the goods that you sell. Next, you need to make sure your systems are set up in such a way that the correct VAT rate is registered for each sale. The VAT rates within the EU can vary significantly from country to country.. For example, the general VAT rate is 17% in Luxembourg and 27% in Hungary. You will need to decide whether your prices will remain the same for all consumers in the EU, or whether you will adjust your prices depending on the applicable VAT rate.
Perform a final check before implementation
Finally, we advise you to test your systems thoroughly. Using test scenarios, you can determine whether the system is set up correctly. It is important to check whether the correct VAT rate is applied, and whether the transaction is correctly processed in your system.
If you have any questions regarding our checklist, or if you would like us to help you with the process of setting up your system, please feel free to contact Marisa Hut or Barthold Bergman.