The way VAT works for e-commerce businesses serving consumers in the European Union (EU) has changed.
In Europe, 25% of e-commerce occurs cross-border. In 2020, its worth rose 35% to €146bn (£125bn).
In response to this growth, and to the billions of euros in VAT fraud leaking through the cracks of the previous regulations, VAT changes have come into play.
Consolidating and reducing the compliance obligations should make things easier both for sellers and their supply chains, and for the authorities policing the system.
These changes were effective from 1 July 2021, and though some new systems are optional, others will impact anyone that is part of an e-commerce supply chain.
That could be a seller, buyer, manufacturer – you name it.
So, e-commerce sellers, sit up.
If your business is associated with Europe (or the UK), in any way, then you need to hear about this, as it could affect your e-commerce accounting.
Sage has previously explored these in detail, so here, we’ll provide a quick overview of what they entail, and then focus on what they mean in practice for sellers going forward.
Here’s what we cover:
An overview of the VAT changes
The 2021 EU E-commerce VAT Package impacts anyone that is part of e-commerce supply chains within, and into, the European Union.
In simple terms, the changes impact:
- Where transactions are taxed
- How transactions are reported.
The changes consist of:
- Replacing the distance-selling thresholds for each member state with one, pan-EU threshold, of €10,000.
- A new One-Stop-Shop (OSS) system for EU VAT returns.
- The introduction of an Import One-Stop-Shop (IOSS) system for EU VAT returns of imported goods.
- Withdrawal of the low-value consignment relief (LVCR).
- Marketplace ‘deemed supplier’ requirements.
Let’s see how each of these changes will impact e-commerce sellers.
How marketplace sellers are impacted
For each of the changes mentioned above, below we break down what they mean and highlight the impact on e-commerce sellers.
1. One pan-EU distance-selling threshold
What it means: Each EU member state used to have its own VAT threshold for distance-selling. These no longer apply. A single threshold of €10,000 is now applicable to every EU member state.
What this means to sellers: Most distance sales are now be subject to the tax rate of the customer’s country.
This is for ‘intra-community B2C distance sales’, which refers to a non-VAT registered buyer in one EU country, purchasing from a seller in another.
At face value, this should make things easier for sellers.
NB: If the threshold is not met, the tax rate applied should be that of the seller’s country. If the threshold is met, the tax rate applied is that of the customer’s country.
2. The OSS and remittance process
What it means: Similar to the previous MOSS scheme, the new One-Stop Shop scheme centralises EU VAT returns. It is an optional, online portal for sellers to simplify their filing.
What this means to sellers: Sellers can register to pay VAT in one place, no matter how many EU member states they do business with. They can file one return quarterly, and the OSS takes care of remitting tax to the relevant authorities.
E-commerce customers see no change in their experience here. This is just for sellers managing their VAT remittance.
What’s the alternative? For sellers that don’t opt for OSS, they need to register, collect and remit VAT in each EU member state with which they meet the €10,000 threshold.
Therefore, the OSS process makes things far simpler and more straightforward for sellers.
NB: There’s a Union and a Non-Union OSS. If your business is established outside of the EU, like in the UK, then you’d register with the latter. If your business is established within the EU, then you’d register for the former.
3. The IOSS and customer experience
What it means: The OSS is used for domestic, intra-community sales. The Import One-Stop Shop (IOSS) is used for imported goods to the EU up to the value of €150 (or ‘low value’).
It’s also an optional online portal, designed to make the customs and import process quicker and easier for lower value consignments.
The UK is now outside of the EU, so this relates to UK businesses sending low-value consignments to EU customers, for example.
What this means to sellers: Sellers can pay their import VAT on applicable sales in one place.
Instead of VAT being payable upon import, you, as the seller, need to charge VAT at the point of sale, and at the rate of the destination country.
Customers get to see what they’re liable to pay before completing their transaction, and aren’t at the mercy of unexpected rates when their orders reach their destination country.
With VAT already collected, the country of importation for that consignment isn’t restricted, which enables quicker delivery and faster release from customs.
Customers get a speedier, more transparent experience and sellers can manage their returns in one place.
NB: There is a sticking point with the IOSS. If a business is not established in the EU, and the country where that business is established doesn’t have a tax assistance agreement in place with the EU, it needs an intermediary to manage tax compliance on its behalf.
4. The end of the LVCR
What it means: The Low-Value Consignment Relief (LVCR) exempted goods worth less than €22 from import VAT – but this has been abolished.
What this means to sellers: VAT is now chargeable on all relevant goods, whether sellers use IOSS (for consignments up to €150) or not.
International sellers had some advantage before with this tax exemption, so this measure has made things fairer for domestic sellers.
5. What marketplaces are responsible for
What it means: The role of marketplace facilitators such as Amazon, eBay and Etsy looks a little different, too.
They’re now deemed suppliers for VAT purposes on certain transactions, which places the responsibility for VAT collection at the point of sale on them, not on sellers.
What this means to sellers: Where the marketplace facilitator collects VAT, it will also remit it on your behalf. It may choose to do this through the OSS or IOSS systems – but this is something you don’t need to worry about.
Marketplace facilitators may be liable for any non-compliance of their sellers, which means they may soon introduce new rules and regulations to ensure that you are meeting your obligations. So, keep a lookout.
Your steps to VAT compliance
Now you have a better idea about EU VAT changes and how they may impact your business operations, let’s cover the next steps.
If you’re unsure where to start but intrigued to make your VAT collection and remittance easier, use this checklist to navigate the new systems:
- Are your sales eligible for registration with the OSS or IOSS?
- Do you need an intermediary? If you’re a UK seller, you may do.
- Do you have the right software to collect, track and remit VAT?
- Do you need help to get this right? A specialist e-commerce accountant can advise you on the route that makes most sense for your business and unique circumstances. This is the best way to ensure you get it right, every time.
For eligibility, criteria and further advice, the official EU pages feature more details on the changes.
No matter the size of your business, if VAT is on your radar, make sure you are clear on your obligations and compliant as you grow.
And while it might be yet another piece of legislation to get your head around, in the medium to long term, it will make life easier for you and your business.
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