EU VAT and E-Commerce Sales: 10 Common Misconceptions Clarified

On July 1, 2021, new value-added tax (VAT) rules for e-commerce sales take effect in the EU. Although much has been written about the new rules (“e-commerce VAT package”) and the EU itself has produced numerous guidance documents, businesses still struggle to get a good grasp of the relatively complex legislation.

While the general objectives and principles of the e-commerce VAT package seem to be well understood, “the devil is in the details” and these details will ultimately determine whether a business is compliant or not.

This article clarifies 10 common misconceptions about the new EU VAT rules for e-commerce sales.

Misconception 1: New Rules Affect All E-Commerce Sellers

Although the e-commerce VAT package introduces far-reaching changes that both EU and non-EU sellers must be aware of, its scope is limited to business-to-consumer (B2C) situations. The new rules will affect any seller who (1) sells goods and services to consumers in the EU; and (2) is involved (even indirectly) in the transport of the goods. If your customers are VAT-registered businesses or they take care of the transport of the goods themselves, you do not need to worry about the new provisions.

Misconception 2: One-Stop Shop is Mandatory

The foundations of the e-commerce VAT package are three One-Stop Shop (OSS) schemes: the Union scheme, the non-Union scheme and the import (IOSS) scheme.

The Union and non-Union schemes allow businesses to register in one EU country for the purposes of declaring VAT due in all EU countries where their customers are located.

The import scheme permits businesses to import goods VAT-free: the seller charges VAT of the customer country at the time of the sale rather than paying import VAT when the goods enter the EU territory.

All three schemes are optional. Although they seek to simplify compliance, there also good reasons not to use them. As you cannot deduct input VAT in your OSS return, businesses incurring significant expenses in other countries may prefer local registrations over an OSS scheme.

Misconception 3: Union Scheme is for EU Businesses Only

A common misconception is that EU businesses can use the Union scheme, whereas the non-Union one is designed for businesses established outside the EU.

This is true as far as supplies of services are concerned. For supplies of services, non-EU businesses use the non-Union scheme and sellers established in the EU register for the Union scheme. However, non-EU businesses may also register for the Union scheme if they perform intra-EU distance sales of goods (i.e. sales of goods from one EU country to another). Such sales are not covered by the non-Union scheme that applies exclusively to services.

As every scheme covers different supplies, a non-EU business may end up registering for all three schemes: the Union scheme for supplies of goods located in the EU, the non-Union scheme for supplies of services, and the import scheme for sales of goods imported from third countries.

Misconception 4: One-Stop Shop is Only for Sales Above 10,000 Euros

In general, when an EU-based seller sells physical goods or digital services to consumers in other EU countries, it must charge the VAT of the customer’s country. To avoid VAT registrations in countries where its customers are located, the seller may opt to use the Union scheme.

However, there is a simplification for EU businesses whose sales of digital products and distance sales of goods to consumers in other EU countries do not exceed 10,000 euros ($12,100). Such businesses do not have to charge the VAT of their customer country but may apply their local VAT.

This exception is subject to strict conditions:

the business is established in only one EU member state;
it supplies goods only from its country of establishment;
its revenue from sales of goods and digital services to consumers in other EU countries (and not its total sales) does not exceed 10,000 euros. The threshold is not counted separately for supplies of goods and digital services but the sum of all these supplies must not exceed 10,000 euros for the threshold to apply.

The seller may choose to disregard the threshold and to charge the VAT of the customer country, registering directly in the customer’s country or for the OSS Union scheme. If it decides to do so, it will be bound by this decision for two calendar years.

Misconception 5: Non-EU Businesses do not Require a Tax Representative

A non-EU business selling digital services to EU consumers may register for the non-Union scheme directly with the tax authorities of an EU member state of its choice. A tax representative is not needed. However, EU member states may require non-EU businesses that want to register for the Union scheme to appoint a representative.

A non-EU business which wants to use the import scheme must appoint an intermediary for this purpose. An intermediary is an EU-based business which will be liable to remit VAT and fulfill the VAT obligations laid down in the import scheme in the name and on behalf of the person represented.

The obligation to appoint an intermediary is waived for non-EU sellers who are established in a country with which the EU has concluded an agreement on mutual assistance for the recovery of VAT (Norway, the U.K.) and who send goods from that country. However, as soon as such a seller starts shipping goods from other third countries, it has to appoint an intermediary to use the import scheme.

Misconception 6: One-Stop Shop Covers all Sales of Goods to EU Consumers

The OSS Union scheme applies only to sales of goods that are shipped from one EU country to another. This means that if a business sends goods to customers in its country, it must declare them in its domestic VAT return. For example, a Belgian retailer selling goods from its Belgian warehouse to both Belgian and Dutch consumers may use the OSS Union scheme for the goods shipped to the Netherlands. However, its local Belgian sales must be declared in the Belgian VAT return.

There is only one situation where local sales of goods are declared via the Union scheme: a non-EU business sells goods located in the EU and this sale is facilitated by an online marketplace.

Misconception 7: One-Stop Shop Does Not Cover Sales Into the U.K.

Although the U.K. is no longer part of the EU, the EU VAT rules continue to apply to sales of goods between the EU and Northern Ireland. Northern Ireland has a dual VAT regime: it follows the EU VAT rules for the sales of goods but it is treated as a non-EU country for the sales of services. This means that sales of goods (but not services) to consumers in Northern Ireland may be declared via the OSS Union scheme.

Businesses established in Northern Ireland may register for the OSS Union scheme if they sell and ship goods from Northern Ireland to EU consumers. However, if they provide services or ship goods from other parts of the U.K. to the EU, they may register for the non-Union scheme or the import scheme, respectively.

Misconception 8: Import Scheme Applies to Goods Below 150 Euros

The import scheme applies to sales of goods imported in consignments whose intrinsic value does not exceed 150 euros. Thus, the value of the consignment and not the value of the goods must be below 150 euros.

A “consignment” is defined as goods packed together and dispatched by the seller to one customer. When multiple orders of the same customer are packed and transported together, they form a single consignment. If a customer purchases one item for 80 euros, the seller may apply the import scheme as the consignment value is below 150 euros. However, if the customer orders two copies of this item, the import scheme cannot be applied, as the consignment value is 160 euros.

Misconception 9: EU VAT Number can be Used for all Special Schemes

Each scheme requires the use of a different identification number. For the Union scheme, the seller is identified with the same VAT number that it uses for all other intra-EU transactions. If a non-EU business registers for the Union scheme, it will be allocated a VAT number by the EU member state of registration.

For the non-Union scheme, a non-EU business will be allocated a special number in the format EUxxxyyyyyz. This number can only be used to declare supplies falling under the non-Union scheme. Similarly, a business opting to use the import scheme will be allocated an IOSS VAT identification number in the format IMxxxyyyyyz.

Misconception 10: Tax Invoices are Obligatory in E-Commerce Sales

Although invoices are commonly issued in e-commerce transactions, there is no legal obligation to issue an invoice for sales covered by any of the special schemes. If the seller chooses to issue an invoice, the rules of the EU country where it is registered apply. However, if the seller performs intra-EU distance sales of goods but does not use the Union scheme, it is obliged to issue an invoice following the rules of the customer’s country.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.