VAT changes are coming into force on the 1 July 2021. These new rules for E-Commerce VAT in Europe will affect online sellers in the UK and the EU. Colleen Flanagan from our Tax Team explains all.
E-Commerce Transactions Impacted by the VAT Changes
Sweeping VAT changes from 1 July 2021 will overhaul how VAT applies to e-commerce sales in Europe. Coming on top of the recently updated HMRC VAT rules for selling goods in the UK using online marketplaces, the changes fundamentally alter the landscape for online sellers in both the UK and the EU.
The main transactions that will be affected are:
- Intra-community supply of goods to non-taxable persons;
- Goods imported into the EU from outside the EU;
- Sales facilitated through electronic interfaces;
- Supply of services to EU member states in which the business is not established.
The key VAT changes that will be applied to these transactions are:
|Nature of Transaction
|Current VAT treatment
|Key changes arising from the EU reform
|EU businesses selling goods online to consumers located in other Member States
|Businesses must register and account for VAT in the member state of the consumer when sales exceed the €35,000/ €100,000 distance sales threshold.
|The existing threshold for intra-community distance sale of goods will be abolished and replaced by a new EU-wide threshold of €10,000.
|Importation of low-value goods up to €22 into the EU
|VAT exemption is granted for the importation of goods up to €22.
|VAT exemption on importation of small consignments up to €22 will be removed.
|Importation of goods from outside the EU up to €150
|Import VAT typically due at the point of importation to the EU.
|Two new schemes will be introduced which move the point at which VAT is collected away from the border.
|Facilitating sale of goods through electronic interfaces
|Responsibility for payment and declaration of VAT lies with the underlying supplier.
|Electronic interfaces will be deemed to “facilitate” sales of goods to consumers in the EU.
|Supply of services to various EU member states
|The VAT MOSS Scheme allows suppliers of telecommunications, broadcasting, and electronically supplied (TBE) services to register for VAT in one member state and account in that member state for VAT due in other member states.
|This system will be extended to all B2C services supplied in an EU member state where the supplier is not established.
EU VAT Changes 2021
Impact on Intra-community Supply of Goods to Non-taxable Persons
From 1 July 2021, the EU distance selling thresholds are effectively abolished, subject to an SME exemption allowing traders to continue to apply their home country VAT if their total EU cross-border B2C sales are below €10,000.
Where the €10,000 threshold is exceeded, retailers and other businesses making online sales of goods within the EU must now charge VAT in the member state to which the goods are transported. To ease the administrative burden that this potentially creates, traders will be able to pay EU VAT through a One Stop Shop (OSS) return filed with their local tax authorities. The OSS has significant administrative benefits as it enables a trader to register for VAT in one member state rather than in each member state to which goods are supplied. When using the OSS, you file a quarterly electronic return and make a quarterly payment of VAT. Records must be kept for 10 years, a significantly longer period than most businesses in NI or ROI are familiar with.
Impact on Goods Imported into the EU
Up to now, when goods were imported into the EU/ NI, VAT was typically paid at the point of importation. The 2021 VAT changes create two additional options for the payment of import VAT on consignments which do not exceed €150/ £135 in value.
Option 1 | Import One Stop Shop (IOSS) This allows suppliers selling goods from a third country to customers in the EU/ NI to collect VAT at the point of sale with VAT paid as part of the purchase price by the customer. When the IOSS is used, the importation of low value goods into the EU is exempt from VAT. The follow table summarises the stages in the IOSS process – EU VAT : Using the Import One Stop Shop (IOSS) >
|Stage 1: IOSS Registration
|Stage 2: Charge VAT at point of sale
|Stage 3: EU Import
|Stage 4: Declare & Pay VAT
|Stage 5: Record Retention
|Seller registers for IOSS and obtains EU VAT IOSS number.
|Seller charges EU VAT to the customer upon sale.
|IOSS goods are VAT exempt if a valid IOSS VAT identification number is declared for importation with EU customs.
|Seller declares and pays VAT to the EU tax authorities where the company is registered for IOSS. One monthly IOSS VAT return is required and one corresponding payment.
|Seller keeps records of sales listing for future control.
Option 2 | Special arrangement for declaration and payment of import VAT Where neither the IOSS scheme nor the standard VAT collection mechanism on importation is used, there is an alternative mechanism to allow for the collection of import VAT. This simplification measure, which comes into effect on 1 July 2021, is designed in particular for postal operators, express carriers and other customs agents in the EU who typically declare low value goods for importation. Under this option, VAT is not paid at check-out. Instead, the customer pays the VAT to the declarant presenting the goods to customs. The steps involved when using this option are shown in the below table – EU VAT : Special arrangement for declaration and payment of import VAT >
|Goods from outside the EU ordered by customer
|Goods declared at import by declarant on behalf of the importer
|VAT paid by the customer to declarant & goods delivered
|Declarant pays VAT collected by 16th of next month
Impact on Supplies facilitated through Online Electronic Interfaces
Special provisions apply to businesses who facilitate supplies through online electronic interfaces. For VAT purposes, the online marketplace is deemed to have received and supplied the goods and are liable to account for VAT on the sales. The rules apply to:
- Goods in consignments of €150/ £135 or less supplied to a customer in the EU/ NI and imported into the EU/ NI;
- Goods located in the EU/ NI and supplied to customers in the EU/NI, irrespective of their value, when the underlying supplier is not established in the EU/ UK.
The single supply of goods sold via an electronic interface is ultimately split into 2 supplies:
- A supply from the underlying supplier to the electronic interface (B2B supply); and
- A supply from the electronic interface to the customer (deemed B2C supply).
Impact on Cross-Border Supply of Services
Up to now, businesses supplying telecommunications, broadcasting and electronic services to non-taxable persons could use the MOSS scheme to simplify their compliance obligations. Post-Brexit the scope of the MOSS scheme is being extended to all services supplied to non-taxable persons which take place in an EU member state. This means that from 1 July 2021, businesses supplying services to non-taxable consumers in various EU member states do not need to register for VAT in each EU member state where the supplies take place. Instead, the VAT due on these supplies can be declared and paid in one single member state via the One Stop Shop. Examples of services that are likely to be covered by these provisions are services deemed subject to VAT in the place where they are supplied such as admission to events and certain hiring and transport services.
VAT Changes 2021 — Action Points for Traders
The VAT changes outlined above will have a significant impact on traders in both the UK and the EU. Now is the time to ensure you are ready to comply with the rules that come into effect on 1 July 2021 and position your business to take advantage of opportunities under the new regime. Here are 5 key action points to focus on.
- Review the new VAT schemes (OSS, IOSS) and register where possible. Irish traders can pre-register for the relevant schemes on ROS. HMRC are expected to release further guidance on the OSS and IOSS schemes before the 1 July launch date. All existing foreign EU VAT registrations for distance sales should be reviewed to determine if they can be cancelled and replaced by OSS registration;
- Online retailers of goods must determine whether systems updates are required to allow them to identify and apply VAT at the appropriate rates in multiple jurisdictions. Traders must be in a position to track sales in each jurisdiction in order to ensure that OSS returns can be filed accurately. Appropriate VAT rates for products in different jurisdictions must be identified and the impact on pricing must be considered;
- Sellers using online marketplaces to facilitate the sale of goods should communicate with marketplaces to determine what the changes mean in terms of future trading relationships. Sellers should be prepared to provide marketplaces with the information necessary to ensure the marketplace can satisfy its compliance obligations;
- Businesses importing goods into the EU must consider the impact of the removal of Low-Value Consignment Relief (consignments up to €22) from a cost and time perspective. If IOSS is not suitable, traders should check if they can apply the new simplified VAT reporting proposed for consignments with a value not exceeding €150/ £135;
- Businesses need to ensure their processes will enable them to produce and retain the data required to comply with the record-keeping rules introduced by the 2021 VAT changes.