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EU VAT changes for e-commerce sellers from 1 July 2021

EU – OSS

 

On 1 July 2021, 27 European countries will introduce new VAT regulations related to distance sales. These changes are brought about with the aim of simplifying cross border e-commerce to EU customers and refer to all online marketplaces (Amazon, eBay, Otto, Kaufland, Media Markt) and web shops.

These new rules that will go into effect on 1 July  2021 are the following:

 

  1. The existing distance selling threshold will be abolished for intra EU online sales. The annual distance selling threshold for most countries was 35,000 euros (e.g. France, Italy, Spain). However, certain countries were the exception, such as Germany or the Netherlands, whose annual distance selling threshold  was 100,000 euros. This principle will be replaced by a uniform annual threshold of 10,000 euros for distance sales for ALL EU countries.
  2. New One–Stop–Shop (OSS) system for the EU will be introduced. Registration for the OSS system will give advantage to sellers/retailers so that the VAT for cross-border sales is declared and paid in the customer’s country of destination.
  3. E-commerce taxation will be applied according to the  COUNTRY OF DESTINATION principle.
  4. These changes refer to online sales B2C.

What does it actually mean?

So far a German-based business involved in distance selling of goods to French consumers through a web shop or Amazon had to remit the VAT to their home VAT authority in Germany. If the annual distance selling threshold of the above mentioned German company was above 35,000 euros, the company had to register with the relevant tax authority in France, get the VAT number and continue paying VAT in France. If the distance selling threshold was below 35,000 euros, the VAT was remitted in Germany. The same principle applied in Austria, as well as in Italy, Spain, Belgium, and other EU countries.

What changes will take place on 1 July 2021?

There will no longer exist an annual distance selling threshold of up to 35,000 euros for separate EU countries. Instead there will be a uniform distance selling threshold of up to 10,000 euros for all EU countries. This means that if a German-based business sells goods online to consumers in Austria for the value of up to 5,000 euros, in France for the value of up to 3,000 euros, in Italy and Spain for 1000 euros, it has to be VAT registered in each of these EU countries and consequently pay the VAT to each country as appropriate. In certain countries, there is an additional obligation to have an accountant. This makes the entire process even more complicated and expensive. A simple solution would be to register for the EU-OSS system. In this way a German-based company does not have to be VAT registered in every single EU country. This will enable a single VAT return in one place, in the One stop shop (OSS) system, quarterly. VAT has to be paid in each country where you are registered for One Stop Shop (OSS), according to the the COUNTRY OF DESTINATION principle.

Although at first glance it seems that the new legislation has been passed only to regulate the fair share of VAT between EU countries, it primarily protects the interests of the EU sellers. For a non EU-based company, which does not have a warehouse in one of the EU member states, Amazon/eBay/other online marketplaces is responsible for collecting and remitting VAT on the sale of the following goods from 1 July 2021:

  1. Consignments with a value of up to 150 euros shipped into the EU;
  2. Goods sold from a non-EU business seller when the goods are within the EU.

In any of these two cases, Amazon/eBay/other online marketplaces will charge the buyer the price with VAT at the rate applicable in the destination country at the time of payment and remit the VAT to the the relevant tax authority. The net price will be paid to the sales partner.

On 1 July 2021 the VAT exemption for imports of goods with a value of up to 22 euros will be abolished, when the goods are shipped from a non-EU country and sold to consumers in the EU. Therefore, Amazon/eBay/other online marketplaces will calculate, collect and remit VAT to the relevant tax authorities.

 

As you can see, the new challenges are ahead of us. What do you think of the One Stop Shop (OSS)?

 

Sources:

https://ec.europa.eu/taxation_customs/business/vat/oss_en

https://www.macintyrehudson.co.uk/publications/article/VAT-changes-to-sales-to-eu-customers-from-july-2021

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