Money Matters

EU E-commerce VAT changes: 5 things business owners need to know

The EU has introduced changes to E-commerce VAT to make things easier and simpler for online businesses. Here's what you need to know.

The European Union (EU) has introduced changes to E-commerce VAT in an effort to make things easier and simpler for online businesses – including those in the UK – who are selling to consumers living within the EU.

According to the Financial Times: “The new rules… were originally designed to stop an estimated €7bn in annual VAT fraud by non-EU e-commerce sellers, many of which are located in China.

“But, after the UK’s departure from the EU, British companies will also need to comply.”

In this article, we explain what the EU VAT E-commerce package is and when it came into force. Then we share five points that you need to know about if you sell online to customers in the EU.

Here’s what we cover:

What is the EU VAT E-commerce package?

1. Preparing for the changes to E-commerce VAT

2. Registering for IOSS

3. Get your VAT right

4. Closure of the €22 VAT exemption

5. IOSS is not compulsory – but it’s recommended

The EU VAT E-commerce package came into force on 1 July 2021 and has two key components:

  • One Stop Shop (OSS)
  • Import One Stop Shop (IOSS).

Previously, if you supplied electronic services within the EU then you probably used a system called Mini One Stop Shop (MOSS).

This allowed you to register in just one EU member state and account for any VAT due in other member states through a single MOSS return with boxes shown for each EU member state – hence the “One Stop Shop”.

Under the new arrangements, the MOSS system will cover all business to consumer (B2C) services taking place in a member state where you, as the supplier, are not established.

This means MOSS has become simply OSS.

This new online portal allows your business to report and pay non-domestic VAT paid for supplies of services and online intra-community distance sales of goods (not just electronic services, as before) to consumers across the EU.

An intra-community distance sale is one where a VATable supply of goods is made from one EU country to a consumer in another EU country.

Union OSS is for companies established inside the EU and non-Union is for those outside it.

IOSS offers you a way of accounting for VAT that makes things simpler for your customers.

This is because you, as a supplier selling imported goods to buyers in the EU collect, declare and pay the VAT to the tax authorities, instead of making your customers pay the VAT.

As with OSS, when you as the seller sign up for IOSS, you can use a single online portal to report and pay your VAT – although this is done monthly rather than quarterly.

It’s worth noting that both OSS and IOSS are optional. However, they are recommended as a way of making life simpler for you and your customers.

So, what do you need to bear in mind regarding the new EU E-commerce VAT?

Look through your list of suppliers and your entire supply chain to ensure you’re aware of your VAT liability and any new reporting obligations.

Consider whether any of your existing VAT registrations need to be changed or cancelled.

Check with your IT systems and accounting software suppliers about what might need to be adjusted to meet the new reporting obligations.

Similarly, make sure that your accounting software can identify and calculate the correct rate of VAT, depending on where your customers are based, whether that’s inside or outside the EU.

Grants of up to £2,000 are available from the government’s SME Brexit Support Fund for professional advice and guidance with these questions.

If your business has a base within the EU, you can register for IOSS directly with the tax authorities of the Member State in which you’re established.

However, if you’re a seller or an online marketplace and you don’t have a presence in the EU but you want to use the IOSS, you have to appoint a VAT intermediary in the EU.

Your intermediary will assume your VAT liability and handle relations with the local tax authorities. The VAT intermediary will rely on information that you give them in order to meet your VAT reporting obligations.

So, it’s important to map the different liabilities and ensure they’re addressed in the relationship between you as the seller/online marketplace and your VAT intermediary.

Ensure you’re paying the correct amount of VAT in the right way under the new E-commerce VAT system.

You should make sure that the VAT is paid to the party responsible for remitting it to the local tax authorities. This will involve checking and possibly re-routing the payment flow between the marketplaces and outlets that you supply across the EU.

You should check whether some of these marketplaces will be considered by the authorities to be the deemed supplier of your goods for the purposes of VAT.

As part of the new E-commerce VAT arrangements, the €22 VAT exemption on small parcels being imported into the EU for delivery to consumers has been withdrawn.

Now, you have to charge VAT at the point of sale for consignments with a value less than €150.

This VAT figure can be declared and paid via IOSS.

All imports into the EU have to be declared at the border using an electronic customs declaration. This is the ‘super-reduced data set’ (H7 Dataset) which contains 24 data elements.

It’s applicable for consignments of up to €150 in value and when the IOSS scheme is used.

Since the aim with this automated procedure is to simplify the customs clearance process, this is known as the ‘green lane’ or ‘green channel’ solution.

Manage your e-commerce business with Sage Accounting

Want to take control of your online business? Sage Accounting will help you manage your stock levels, invoicing and cash flow forecasts, so you can stay on top of your game.

Find out more

As mentioned above, you don’t have to sign up for IOSS.

When the IOSS for distance sales of imported goods of a value up to €150 is not used by online sellers or marketplaces, it will be postal operators and couriers that have the responsibility to collect and pay VAT.

If you decide not to use IOSS, the EU authorities will collect VAT when the goods are imported in the same way that import VAT is currently collected on higher value goods.

EU customers will receive their goods once the VAT has been paid.

To reduce the added administrative cost and the impact on cash flow for postal operators and couriers who find themselves paying out VAT on behalf of their customers, the EU is allowing the collected VAT to be paid to the authorities on a monthly basis.

However, the European Commission is encouraging businesses to use IOSS in order to deliver a more seamless customer experience and faster clearance of goods through customs.

Final thoughts

The E-commerce VAT reforms require many companies to make changes to the way that they do business with and within the EU.

However, it’s worth bearing in mind that the aim of these changes is to simplify and coordinate VAT charges, collection and payments across the EU.

With e-commerce in Europe valued at around €717bn and growing rapidly, you could easily get a good return on your investment in updating systems and accessing professional advice as you gain easier access to this important market.

Editor’s note: This article was first published in June 2021 and has been updated for relevance.

Selling online to European consumers

Learn about the new EU VAT e-commerce legislation, what it means for your business and what you need to do now to comply.

Download your free guide