New VAT rules for e-commerce will be rolled out across the EU in July to simplify life for businesses that sell goods online while ensuring a more level playing field with online companies from outside the EU. These rules will be particularly significant for anyone selling goods online or running an online marketplace. The aim is to:
- ensure that VAT is paid where goods are consumed or the services paid for are provided;
- create a uniform VAT regime for cross-border supplies of goods and services;
- offer businesses a simple system to declare and pay their VAT in the EU, using the (Import) One-Stop Shop portal;
- introduce a level playing field between EU businesses and non-EU sellers.
These rules will also help tackle the VAT Gap, which is the difference between expected VAT revenues and VAT actually collected in each Member State. While the overall EU VAT Gap slightly decreased by almost €1 billion to €140.04 billion in 2018 the new VAT e-commerce rules will support efforts to reduce the figures even further and make the global digital transformation work for both people and businesses.
How can online businesses benefit from the new rules?
The EU has developed new online tools where businesses can register and take care of their VAT obligations for all their sales in the EU. This replaces the previous system whereby online companies were obliged to register for VAT in each EU country before they could sell to consumers there. The new system should save EU businesses up to €2.3 billion a year in compliance costs.
As of 1 July, businesses will be able to electronically declare and pay the VAT for all their intra-EU sales in a single quarterly return – all while working with the tax administration of their own Member State and in their own language, even when their sales are cross-border. The new platform for businesses and taxable persons, the VAT One-Stop Shop (OSS), can be used to account for the VAT due on goods and services sold online throughout the EU, reducing compliance costs by up to 95%.
Meanwhile, the Import One-Stop Shop (IOSS) facilitates the collection, declaration and payment of VAT for sellers that are supplying goods from outside the EU to customers in the EU. In practice, this means that these suppliers and electronic interfaces can collect, declare and directly pay the VAT to the tax authorities of their choice, rather than having the customer pay the import VAT at the time the goods are delivered to them. This makes life easier for the businesses, but also protects online shoppers from hidden costs.
Finally, the current VAT exemption for packages entering the EU with a value not exceeding €22 will be abolished. While most non-EU companies play fair, this exemption meant that some sellers were able to fraudulently declare high-cost goods, such as smartphones, at a lower price only to benefit from this exemption, thus undercutting EU companies who had no choice but to charge their EU customers the full VAT rate on the same products. By eliminating this exemption, European businesses will be able to compete on a more level playing field.
In short, these new rules will lead to a speedier, more efficient cross-border online shopping experience for both businesses and customers.
The new rules will come into action on 1 July 2021.
For additional resources regarding the upcoming change in the EU’s VAT legislation checkout these tools and feel free to share them with colleagues and stakeholders so everyone can get informed and prepare for the changes to cross-border VAT e-commerce in the EU.