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E-commerce rules set to change in the EU
As of 1 July 2021, new VAT rules regarding e-commerce will enter into force in the European Union (EU). These rules are of importance to all businesses involved in cross-border sales of goods to consumers in the EU. It is not relevant whether you are established in an EU country or a non-EU country. The changes are far reaching and in some cases very complicated. In many cases, changes to your systems and processes will be required. If you sell goods to consumers in the EU, please ensure you are up-to-speed on the VAT consequences for your business.
Initially, the changes were set to enter into force as of 1 January 2021. However, this was postponed as a result of the Corona pandemic.
For whom are the changes relevant?
The e-commerce changes are relevant for:
- Businesses that sell goods to consumers in the EU, if the goods are sent directly from a non-EU country to a consumer in the EU
- Businesses that sell goods to consumers in the EU, if the goods are held in stock in an EU country and sent from that EU country to a consumer in another EU country
- Platforms (marketplaces) that facilitate sales to consumers
- Payment service providers
- Postal and courier companies and customs agents
What are the most important changes?
Goods from outside of the EU
Import threshold abolished
A lot will change for businesses that sell goods to consumers in the EU, and to that end send the goods from a non-EU country to the EU. For example, the VAT exemption for low-value consignments (below € 23), will be abolished. Every import of goods will become subject to VAT, regardless of the value of the goods.
New way of levying VAT upon import
Now that every import of goods is subject to VAT as of 1 July 2021, special schemes will be introduced to make the payment of VAT by businesses easier. But these simplifications are only available for consignments with a value not exceeding € 150.
The first simplification is the so-called Import One Stop Shop (IOSS). If a business wishes to make use of the IOSS, it must specifically register to do so. For businesses that are not established in the EU, an intermediary (often a logistics service provider) must be appointed, to be able to use the IOSS. If a business uses the IOSS, the import into the EU is exempt from VAT and the sale to the consumer is VAT taxed in the EU country of destination. The VAT due is paid using the IOSS.
If the business does not make use of the IOSS, and imports the goods in the name of the consumer, the party that takes care of the clearance must collect the VAT from the consumer and pay the VAT to the tax authorities. Due to a second simplification, the payment to the tax authorities can take place monthly (Scheme for postal and courier services). This prevents import VAT having to be paid ‘directly at the border’.
If the value of the consignment exceeds € 150, the IOSS and the scheme for postal and courier services are not applied. In such a case, the question arises in whose name the goods are imported into that EU country: in the name of the supplier or in the name of the consumer. The VAT consequences are determined based on the answer to this question.
Goods within the EU
Do you maintain stock in an EU country, in your own warehouse or that of a third party (for example a logistics service provider)? And do you sell these goods from stock to consumers in another EU country? If so, you will face significant changes.
Turnover threshold and OSS returns
For example, the current thresholds for distance sales will come to an end. As of 1 July 2021, a new turnover threshold of € 10,000 will be introduced, aimed specifically at so-called small businesses. This threshold applies to the sum total of all B2C EU supplies and B2C electronic services. If the turnover from these supplies remains under this threshold, the B2C EU supplies of goods are subject to the VAT of the EU country where the transportation of the goods initiates, and the B2C electronic services are subject to the VAT of the EU country where the service provider is established.
- Beware! The € 10,000 threshold only applies to businesses that are established in an EU country. The threshold does not apply to businesses that are established outside of the EU.
A Dutch business operates an online shop. Parcels are sent from the Netherlands to customers. The Dutch business has a lot of sales within the Netherlands. It does not yet have many customers in other EU countries. The annual sales to consumers in other EU countries totals around € 6,000 per year. The business does not supply B2C services to individuals in other EU countries. The Dutch business does not exceed the threshold of € 10,000 per year. Therefore, it charges Dutch VAT on the sales to consumers in other EU countries.
However, if a business exceeds the threshold in a given year, the sales are subject to VAT in the EU country of destination of the goods, from that moment onwards. To prevent the need for local VAT registrations and reporting obligations in each EU country, these businesses may account for the VAT due by means of a special VAT return, namely the OSS return. If a business is established in an EU country, it must register for OSS in that EU country. Non-EU established business must register in the EU country in which the dispatch or transport of the goods begins. In the situation that the dispatch or transport of the goods begins in multiple EU countries, the non-EU established business can choose its EU country of identification.
As soon as the registration has been arranged, the business can report the VAT which is due in other EU countries, in the OSS return. It then files the OSS return in the country of registration. The payment of VAT due also takes place in the country of registration. The country of registration subsequently ensures that the VAT due is then paid on to the authorities in the other EU countries.
A business established in the United States (US) keeps stock in the warehouse of a logistics service provider in the Netherlands. The US business sells goods to consumers in the Netherlands and all the other EU countries, through his online shop. These goods are shipped from the Dutch warehouse to the Dutch and EU customers. The online shop is doing well, the annual turnover is around € 500,000. The US business is liable to VAT in all EU countries. The correct pricing is applied in the online shop, and VAT is collected from the customers. The US business has both an OSS registration and regular VAT registration in the Netherlands. In its Dutch OSS return, the US business reports the VAT due and pays this to the Dutch Tax Authorities. In its Dutch VAT return the Dutch VAT due on these sales to the Dutch customers is reported. This Dutch VAT is paid to the Dutch tax authorities as well.
- Beware! If the US business were to ship the goods to its clients directly from the US (so not through a Dutch stock location), the rules for goods imported from outside of the EU would apply.
Points of attention and opportunities
The abolition of the VAT exemption for low-value consignments and the new schemes upon import will in many cases lead to more complications and obligations.
However, the new regulation for businesses which hold and sell stock within the EU, may offer advantages. After all, the OSS return will make it a lot easier for these businesses to declare and pay the VAT due, to the various member states. This offers an opportunity for market expansion!
Proper preparation is essential. For instance, businesses should analyse the flow of goods, determine the VAT consequences, register for IOSS / OSS as soon as this is possible, adjust their systems to apply the correct VAT rates per country, and so on. Retrospective adjustments always lead to additional costs.
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