New Value-Added Tax (VAT) rules for online shopping enter into force later this week* as a component of efforts to ensure a more level battleground for all businesses, to work on cross-border e-commerce, and to introduce greater transparency for EU shoppers when it comes to estimating and consumer choice.
The EU’s VAT system was last updated in 1993 and has not kept pace with the rise in cross-border e-commerce that has transformed the retail sector in recent years. The Coronavirus pandemic has additionally further accelerated the blast in online retail, and again underlined the need for reform to ensure that the VAT due on online sales gets paid to the nation of the consumer. The new rules additionally respond to the need to improve life for shoppers and traders alike.
The new rules come into force on 1 July and will affect online sellers and marketplaces/stages both inside and outside the EU, postal operators and couriers, customs and tax administrations, just as consumers.
What is changing?
Starting on 1 July 2021, a number of changes will be introduced to how VAT is charged on online sales, whether consumers purchase from traders inside or outside the EU:
Under the current system, merchandise imported into the EU valued at less than €22 by non-EU companies are exempt from VAT. As of Thursday, this exemption is lifted with the goal that VAT is charged on all products entering the EU – actually like for merchandise sold by EU businesses. Studies and experience have shown that this exemption is being abused, with corrupt sellers from outside the EU mislabelling consignments of merchandise, e.g. smartphones, to benefit from the exemption. This loophole permits these companies to undercut their EU competitors and costs EU treasuries an estimated €7 billion every year in misrepresentation, leading to a bigger tax burden for other taxpayers.
Currently, e-commerce sellers need to have a VAT registration in each Member State in which they have a turnover above a certain overall threshold, which varies from one country to another. From 1 July, these different thresholds will be replaced by one normal EU threshold of €10,000 above which the VAT should be paid in the Member State where the merchandise are delivered. To improve on life for these companies and to make it a lot easier for them to sell into the other Member States, online sellers may now register for an electronic entry called the ‘One Stop Shop’ where they can take care of the entirety of their VAT commitments for their sales across the whole of the EU. This €10,000 threshold is already applicable for electronic services sold online since 2019.
Rather than wrestling with complicated procedures in other countries, they can register in their Member states and their language. Once registered, the online retailer can tell and pay VAT in the One-Stop Shop for the entirety of their EU sales by means of a quarterly declaration. The One Stop Shop will take care of sending the VAT to the respective Member State.
Along these lines, the presentation of an Import One-Stop Shop for non-EU sellers will permit them to register easily for VAT in the EU and will ensure that the correct measure of VAT makes its direction to the Member State in which it is at long last due. For consumers, this means much more transparency: when you purchase from a non-EU seller or stage registered in the One-Stop Shop, VAT ought to be important for the price you pay to the seller. That means no more calls from customs or courier services requesting an extra payment when the products arrive in your home country because the VAT has already been paid.
Already, businesses outside the EU have been registering in large numbers for the Import One Stop Shop, including the biggest worldwide online marketplaces.