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November 8, 2023
The European Commission, in response to the challenges created by the Coronavirus pandemic, has decided to postpone its new European VAT rules for business-to-consumer (B2C) transactions until 1 July 2021.
These new rules are part of the EU’s new e-commerce package and will look to introduce a VAT One-Stop-Shop (OSS) for B2C sales.
Originally due to come into force on 1 January 2021, the main aim of this package is to simplify VAT obligations for companies carrying out cross-border sales of goods and services (mainly online) to consumers. This will ensure that VAT on is paid correctly to the Member State in which the supply takes place
The current rules
Under the current EU rules, businesses from outside of the EU are typically required to register in each of the various Member States to which they supply goods or services to report and pay EU VAT at various rates on their sales.
Businesses offering B2C digital services can already use the Mini One-Stop-Shop (MOSS) to declare the VAT due on their supplies in a single quarterly VAT return, by only registering in one EU Member State.
However, no such declarative system is available to those selling physical goods, which means that imported goods from non-EU countries with a value above €22 (£15) must register for VAT in each EU member state and make the necessary declarations.
The new rules
From 1 July 2021, the EU will create a similar One-Stop-Shop (OSS) for B2C suppliers of all services and goods, which will remove the requirement for a business to have multiple VAT registrations and reporting obligations in the EU.
At the same time, the distance sales threshold will be abolished and replaced with a common threshold of €10,000 (£8,600) throughout the EU up to which B2C EU cross-border supplies remain subject to the VAT rules of the Member State of dispatch, and above which supplies become subject to the VAT rules of the Member State of destination.
Under this new system, a single report scheme covering sales of imported goods to EU consumers up to a value of €150 (£135) and for which a VAT exemption upon import, will apply if the trader declares and pays the VAT at the time of the sale using the Import One-Stop-Shop (IOSS).
The new package of legislation from the EU will also open the possibility of paying import VAT on customs declarations via a simplified monthly payment.
Who do the new rules affect?
The new rules will affect suppliers outside the EU as follows:
Suppliers of services to EU consumers – Various VAT rates currently apply to the sale of their services depending on the nature of the supply and the place of residence of the clients or customers.
However, from 1 July 2021 businesses could use the OSS to lighten their reporting obligations. The choice of the EU Member State where they could register for the OSS will depend on where they and their customers are established or based.
Sellers of goods to EU consumers – These businesses will see changes to their reporting obligations and potentially their profits.
Where a seller is a small business selling less than €10,000 (£8,600) per annum of goods and services to consumers in other Member States, they will be able to charge domestic VAT and report their sales below this threshold in their regular domestic VAT return.
If they are a B2C seller dispatching their goods from a single EU Member State, they will no longer be required to register for foreign VAT or complete multiple VAT filings in the EU Member States where they are selling their goods. Instead, they can opt to file a quarterly return under the OSS alongside their regular domestic VAT return.
Importantly non-EU sellers, including the UK (post-Brexit) can use the OSS to register as a “non-Union” taxpayer with the tax authority of the EU Member States of their choice, except where they already have fixed establishments in the EU.
This means that they could file quarterly returns under the OSS and only file a regular domestic VAT return in just one EU Member State where they are registered, instead of across multiple states under the current rules.
In some EU member states, online marketplaces, such as Amazon, are deemed the supplier of the goods, which may mean that some online sellers could de-register for VAT in certain EU Member States if they only sell via these marketplaces, as it will be the responsibility of the marketplace to collect the VAT at the time of the sale.
Steps to consider
Here are some important steps that you may need to consider under the OSS:
VAT Compliance – The OSS should reduce compliance costs by allowing businesses to use a single VAT return and registration in just one EU member state. In some cases, it may be necessary to appoint an intermediary or fiscal representative in a member state, who will report the sales on behalf of the seller and account for the VAT.
Procedures – Sellers must update their procedures and systems to recognise the VAT status of their clients, the countries of import, dispatch and/or arrival and capture the VAT rates applicable – be aware that there are more than 80 different EU VAT rates.
Trading via online marketplaces – If you trade via an online marketplace, like eBay or Amazon, you should review your contracts with these organisations to ensure that VAT accounting responsibilities are clearly defined.
Pricing – Goods might be subject to the VAT rate of the Member State of destination of the goods, whereas up until now, it might only be the case when national thresholds are exceeded, which means that the sale price or the seller’s margin will vary. With low consignment relief due to be abolished, VAT will be due on those sales at the rate applicable in all EU countries of sale. This will also impact the price and margin of the products.
Businesses must prepare now for these changes in July to ensure they are ready to implement the OSS, should they choose to use this simplified VAT system. If you need advice on what these rules mean for you and your business, please contact us.