On July 1st, 2021, new EU-wide VAT rules for e-commerce will enter into force. The aim, according to the European Commission, is to simplify VAT obligations for businesses involved in e-commerce while combating fraud and ensuring fair competition for European companies. The new rules bring with them a large number of changes. In this article, we list the most important of these.
Business-to-Consumer (B2C) distance selling
Under current legislation, when a sale is made to a consumer in another EU Member State, Dutch VAT must be charged until a certain annual turnover threshold (which varies between Member States) is exceeded at any point. Once the threshold is exceeded, the so-called distance selling scheme applies for the rest of the year and the following year, and the VAT rate of the country of arrival must be charged.
Under the new legislation, Member State thresholds will be abolished and instead there will be a single EU-wide threshold of €10,000 per year. This means that if distance sales exceed €10,000 in a given year, the VAT rate of the country of arrival must be charged and paid.
Under the new legislation, it will be much more common for businesses to have to charge foreign VAT. To be able to declare and pay this VAT, a VAT registration is, in principle, required in all countries where the private customers are located. This will lead to a significant increase in the administrative burden. To reduce this burden, a One-Stop-Shop (OSS) is also being introduced. The One-Stop-Shop allows businesses in one EU Member State to submit a quarterly return for all B2C distance sales, broken down by EU country and VAT rate. After submission of the OSS return, the total EU VAT will be paid to the tax administration of the Member State in which the OSS return is submitted. That Member State will then ensure that the VAT is redistributed among the EU countries concerned on the basis of the specification contained in the return.
From July 1st, 2021, the One-Stop-Shop can also be used for services to private individuals in other EU countries where foreign VAT has to be charged. For example, a Dutch painter who occasionally paints houses of private individuals in Germany can declare and remit German VAT on these services via the OSS. The One-Stop-Shop is optional. Businesses can opt not to use it and thus register locally for VAT. However, once the decision has been taken to use the OSS, all distance sales must be declared through this system. It is not possible to opt to use the OSS for certain Member States and not others.
Another part of the new distance selling rules is what is referred to as platform fiction. Under this fiction, in certain cases web shops and other electronic platforms become responsible for charging and remitting VAT on the goods sold through the platform, even though the platform does not actually own the goods. The platform fiction can only apply in the following situations:
- The platform facilitates B2C distance selling of goods coming from outside the EU in consignments with an intrinsic value of less than €150, regardless of where the supplier is based, or;
- The platform facilitates B2C sales of goods from a non-EU-based supplier.
The effect of the fiction is that the platform is deemed to have first purchased the goods from the supplier and then supplied them to the private customer. This chops the transaction into two deliveries. The delivery from the supplier to the platform is either untaxed (in the case of non-EU goods) or taxed at 0% (in the case of EU goods). The delivery from the platform to the private individual is subject to the new distance selling rules as described above. Platforms covered by the platform fiction can use the OSS to declare their (fictitious) distance sales.
At present, private individuals who import goods worth less than €22 do not have to pay VAT. This import exemption will be abolished on 1 July 2021. VAT will then have to be paid on all goods entering the EU. As consumers generally do not like to be confronted with import VAT in arrears, a scheme is also being introduced for businesses which sell non-EU goods to EU consumers. This import scheme, also known as Import One-Stop-Shop (IOSS), allows businesses to declare and remit all VAT on shipments of less than €150 from outside the EU to EU consumers via one monthly return in one EU country. They have to show and charge this VAT when the goods are sold, so that consumers are not faced with import VAT and additional charges on delivery of the goods. This scheme is also open to platforms that fall under the platform fiction.
Postal and courier arrangements
The import scheme outlined above is optional. If a seller opts not to apply the scheme, it will ultimately be the consumer who has to pay the import VAT in arrears. In such cases, postal or courier companies will often handle the import return and advance the VAT on behalf of the consumer, who will then reimburse the postal or courier company upon delivery of the shipment. In order to simplify and streamline this process, a postal and courier scheme is being introduced. In short, the scheme means that all import VAT can be declared and paid on a monthly basis, instead of per shipment. This provides a cash-flow benefit for the postal or courier companies and also keeps costs down for consumers.
The legislation will entail quite a few changes. Businesses which sell goods to private individuals within the EU will have to prepare carefully for this. The following are important in this regard:
- changing the VAT codes/rates used;
- updating ERP/ invoicing systems;
- as required: timely registration for the (I)OSS;
- changes to the VAT return process: OSS or VAT return in country of arrival?
- if applicable, take into account the new customs import processes.
Need any help? Our specialists will be happy to support you!
If you have any questions about these new VAT and e-commerce regulations, or if you would like to know what the consequences are for your business and you need help in preparing properly, please do not hesitate to contact VAT specialists Tiago Schotten or Roel Timmermans of Bol International. They will be happy to help you!