The EU will officially implement sweeping value-added tax (VAT) reforms for domestic and international sellers on July 1, 2021. Included in the reforms are significant changes on everything from VAT registrations and exemptions to new marketplace obligations. As with any change, the reforms are bringing new complexity for businesses selling into the EU.
Global Sellers Face New VAT Rules
For global sellers currently selling into the EU or those planning to in the future, there are three fundamental changes to e-commerce EU VAT, including a single VAT return for the EU, the removal of VAT exemptions for low-value parcels, and new deemed supplier rules for marketplaces.
The key reform—known as the One-Stop Shop (OSS)—will allow some sellers to report all their pan-EU distance sales on a single VAT return in just one member state instead of having multiple VAT registrations across the EU. The aim is both to boost cross-border online trade and promote trade across the EU’s digital single market by reducing compliance obligations.
The OSS scheme will simplify the current requirement for sellers trading within the EU to VAT register in each country they sell to. The scheme is optional and open for EU and non-EU sellers; they must register with a single member state to file an OSS return for their business-to-consumer (B2C) sales of goods within the EU.
The next significant change comes as part of the EU’s efforts to close the import VAT exemption loophole and even the playing field for EU sellers when it comes to price. Beginning July 1, the existing 22-euro ($26) VAT exemption on low-value parcels imported into the EU for delivery to customers will be withdrawn and import VAT would apply to parcels of all value.
Under the new rules, VAT can now be charged at the point of sales for transactions up to the value of 150 euros. The VAT charged may then be declared and paid via a new submission, the Import One-Stop Shop (IOSS). All sellers can register in one EU member state to use this IOSS scheme, although non-EU sellers would need to register through an intermediary. The registration for IOSS in one EU state enables sellers to declare VAT on any affected imports across all of the EU.
The third change has a direct impact on online marketplaces. Similar to marketplace facilitator laws in the U.S., the reforms will require marketplaces that process cross-border sales on behalf of third parties to become the deemed sellers for VAT collections.
The new deemed supplier regulations will apply in two cases when the marketplace is facilitating a B2C sale:
- imports with a cross-border transaction not exceeding 150 euros by EU and non-EU sellers;
- sales within the EU by non-EU sellers for transactions of any value.
Global Sellers Need to Adapt for Immediate Impact
Each of the reforms going into effect on July 1 seeks to address existing disparities, combat fraud, and streamline the process for domestic EU and international sellers. Still, retailers and marketplaces selling within and into the EU will see far-reaching implications for their businesses on everything from pricing to tax calculations. To prepare for these implications, there are several steps and considerations impacted businesses will need to take.
Taking Advantage of IOSS
When it comes to the IOSS, sellers will need to adjust their registration, calculation, and returns processes. With the IOSS, sellers will need to register with one member state. Upon registration, the seller will receive a unique IOSS identification number to place on all packages under 150 euros sent to the EU.
Before July 1, 2021, EU and non-EU sellers selling goods online to EU customers can ship goods into the EU directly to the customer, import VAT-free, if the goods are valued at 22 euros or below.
With the IOSS, sellers will now calculate and charge VAT at the point of sale and submit the invoice with the package for clearance at customs.
Lastly, IOSS returns will need to be filed monthly, and depending on where a business is based an intermediary may be needed to complete the registration, filing and VAT payments.
Understand Marketplace Definitions to Determine the Deemed Supplier
- To understand where the new rules will apply, further consideration should be applied to the definition of a marketplace and facilitation, and the scope of transactions impacted. Once identified as a deemed supply, a new two-stage VAT transaction process must be applied to the transaction:
- the seller will sell goods to the marketplace on a business-to-business (B2B) VAT exempt-with-credit basis—meaning the seller remains free to deduct any input VAT suffered on the purchase of the goods. The transport of the goods will be attached to this transaction, entitling the transport to a zero rating;
- the marketplace will sell the goods to the customer, charging the VAT rate of the customer’s country of residence. The VAT is due when the marketplace receives the order, the commitment, or the order to pay from the customer.
For global businesses selling in the EU, these new VAT reforms will have immediate and long-lasting impacts on e-commerce operations across the 27-nation bloc. Understanding these changes is the first step in ensuring that businesses will avoid any delays or penalties.
As businesses work to adapt their processes for EU transactions, technology will be essential in quickly complying and maintaining compliance for years to come.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Liz Armbruester is Senior Vice President of global compliance operations with Avalara.
The author may be contacted at: email@example.com