Are you ready for the new VAT rules for e-commerce?

The increasing digitization of the sale of goods and services brings with it the need to simplify VAT obligations for entrepreneurs. As of January 1, 2021, new VAT rules in the European Union were to come into effect for e-commerce (distance sales), but due to the corona issue, this has been postponed until July 1, 2021.

These measures, also known as “the VAT package for e-commerce”, aim to simplify and modernize the VAT system for online sales of goods, as well as to tackle VAT fraud. These rules only apply to sales by entrepreneurs to individuals (B2C) located in the EU, not to sales to other businesses (B2B).

As mentioned, the new regulations will not apply until the 1st of July 2021. However, given the increasing popularity of online shops, it is good that you know now what to expect.

1. Elimination of local thresholds for distance selling and introduction of two thresholds for small e-commerce businesses.

Under the current regime, the cross-border sale of goods to consumers within the EU is taxable in the EU member state where the goods are delivered. However, this is only the case if the local thresholds for distance sales are exceeded and the supplier is responsible for the transport or facilitates the transport in some way, as well as in the event that the supplier (when the threshold is not exceeded) explicitly opts for the application of VAT in the Member State of arrival.

On July 1, 2021, those local threshold amounts will be eliminated. This means that traders will already be liable for VAT in the EU member state of arrival of the goods from the first distance sale. Only traders making intra-Community B2C sales for less than EUR 10,000 can still opt to apply the VAT of the Member State of establishment.

2. Expanding MOSS (Mini-One-Stop-Shop) to OSS

Under the current regime, distance sellers are required to register for VAT in the member states where they cross the distance sales threshold and submit local VAT returns.

Companies providing telecommunications, television and electronic services within the EU can already today use the mini one-stop-shop (MOSS or Mini-One-Stop-Shop). The MOSS scheme allows them to file VAT returns and pay VAT in only one Member State, namely in the Member State of establishment (for EU companies) or in the Member State of identification (for non-EU companies). As a result, they do not have to register for VAT in every Member State where they supply services. Unfortunately, distance sellers cannot yet take advantage of this arrangement, but that is about to change.

The MOSS regime will be extended, if all goes well, to all types of B2C services offered online, as well as to distance sales of goods within the EU by July 1, 2021.

E-commerce companies can then remit foreign VAT through an OSS return in one member state.

Also for goods from outside the EU, the MOSS scheme has an extension.

Distance selling of goods imported from third countries with a value of up to EUR 150 will be subject to VAT in the EU Member State of arrival of the goods, while the import itself is exempt from VAT. The supplier who chooses to do so will then have to declare the VAT due in MOSS, more specifically “import OSS” or I-OSS.

The I-OSS is not mandatory, but if not applied, the import will be subject to VAT. The online seller can then choose to have the import VAT paid by the customer (in practice, this is done through the intervention of a customs agent).

3. Elimination of the VAT exemption for imports of small consignments

Under the current VAT regime, normally all goods imported into the EU are subject to VAT. However, low-value shipments (maximum EUR 22) sent from countries outside the EU to customers within the EU are free of VAT.

The exception for low-value imports is eliminated.

4. VAT and e-commerce: the implications for practice

Apart from the simplification for small businesses, the new regulation brings all distance sales into line, as these sales are taxed in the country of arrival of the goods. It is not important from which supplier in the EU the individual purchases goods.

The OSS and I-OSS schemes contribute to simplification for entrepreneurs who are subject to the waiver scheme.

Thanks to the cloud e-commerce platform of Oracle Netsuite, you are always in compliance with all VAT obligations and this worldwide.

If you would like to know how Growire can help make your life easier please contact us.