Legislative changes to VAT 2021
The current laws and regulations for the e-commerce sector, i.e. online shops, are incredibly complicated for entrepreneurs. This is one of the reasons why local governments miss out on VAT revenue. In order to simplify the current system, the rules for the e-commerce sector will consequently undergo drastic changes.
New VAT rules for the e-commerce sector per 2021
The main changes for e-commerce supplies will not take effect until 1 July 2021. Originally this date was scheduled to be 1 January 2021. However, due to measures surrounding the corona virus and the practical application thereof, the European Commission proposed postponing implementation by 6 months, as more time was required for preparations. This proposal was accepted by the European Union Council of Ministers on 22 July 2020. The current regulations will therefore remain in force and will not change until 1 July 2021. However, the Netherlands and Germany have requested the European Commission to postpone the implementation for an additional six months, i.e. to 1 January 2022. It remains to be seen whether other member states will follow this. Austria, Bulgaria, France and Malta have already indicated that they would prefer to implement the new regulation per 1 July 2021. The debate on the matter remains open.
2021: Changes for e-commerce supplies within the EU
For businesses with e-commerce supplies of goods within the EU, the following (amongst other things) will change:
- The current distance selling scheme will change. Currently, a business which sells goods to consumers in other EU countries is often liable for VAT in the EU country where the transport of the goods ends. This is for example the case if a business exceeds a certain turnover threshold (e.g. the Netherlands has a turnover threshold of € 100.000 per year). Per 1 July 2021 the old turnover threshold will no longer apply and the business will in principle incur VAT in the EU country where the transport ends.
- For small e-commerce businesses a new turnover threshold of € 10.000 per year will be introduced. These businesses may charge the VAT of the EU country where the transport of the goods initiates, if they remain below the threshold and are established in only one EU country.
- Businesses may file one special VAT return for their cross-border distance sales in the EU country in which they are based. Businesses which use this so-called ‘One Stop Shop’-return are no longer required to file separate VAT returns in the EU countries where the distance sales are subject to VAT. Specific conditions for the use of the One Stop Shop apply.
2021: Changes for e-commerce supplies from countries outside of the EU
More and more e-commerce businesses supply goods from countries outside of the EU. For these businesses, the following (amongst other things) will change per 1 July 2021:
- Low-value consignments sent from countries outside of the EU to customers within the EU are currently not subject to import VAT. This VAT exemption for import of small consignments, currently applicable to packages with a value up to € 22, will end per 1 July 2021. From that moment onwards, the import of small consignments is therefore also subject to import VAT.
- Entrepreneurs who supply goods from countries outside of the EU, can under certain conditions use a One Stop Shop. In that case, they will only need to file a VAT return in one single EU country, for their distance sales from countries outside of the EU. This Import One Stop Shop (IOSS) scheme is only applicable for consignments with an intrinsic value up to € 150. An entrepreneur who uses IOSS can apply a VAT exemption to the import of the goods, if certain conditions are met.
- Special rules for the levy of VAT upon import will be introduced for cases where the IOSS is not used. Certain entrepreneurs -mainly postal operators- can in that case withhold the import VAT from the person for whom the goods are intended, and then report and pay the import VAT on a monthly basis, by means of an electronic return. This prevents them from having to pay the import VAT immediately ‘at the border’. The scheme is subject to a number of conditions and in any case only applies to consignments with an intrinsic value up to € 150.
Other changes to the VAT system
Besides the points discussed above, there are several other changes to the VAT system. For example, special obligations will be introduced for businesses which facilitate distance sales by means of electronic interfaces such as market places or platforms (as of 1 July 2021). In addition to this, four so-called Quick Fixes have come into force as of 1 January 2020, for the current intra-Community trading system. Additionally, the European legislator wants to drastically change the trading system in a number of other areas per July 1, 2022. However, those plans have not yet been definitely approved.
Consequences for your business
If your business is involved in (cross-border) trade or e-commerce, there is a good chance that the new VAT rules will affect your business. We expect that many businesses will have to adjust their ERP systems and operational processes (e.g. administration, invoicing); for example to account for the changed turnover thresholds and reporting possibilities. On the other hand, the expansion of the One Stop Shop offers opportunities to simplify the handling of the VAT payments.
Are you prepared for the changes that were originally meant to enter into force per 1 January 2021? Please bear the definitive postponement to 1 July 2021 in mind, and adjust your schedule for the changes accordingly.