Starting from July 1, 2021, EU customers will be charged VAT for products they order on online stores and marketplaces (such as Amazon, AliExpress, eBay), regardless of the order’s value.
The new VAT e-commerce rules seek to improve VAT collection within the EU, and to tax online cross-border trade efficiently. They also seek to make competition between EU and non-EU suppliers fairer.
The 22 EUR threshold for VAT exemption will no longer apply
At the moment, in most EU countries there’s a 22 EUR VAT exemption threshold, which will no longer apply after July 1, 2021. Goods ordered from outside of the EU that have a lower value were VAT exempt in most cases (in Poland, this exemption has already been abolished). This rule was sometimes abused by sellers, who under declared the value of their products in order to avoid dealing with VAT obligations within the EU. This threshold will no longer apply and online marketplaces who facilitate online trade will have to charge VAT on all products.
Online marketplaces will need to charge and remit VAT
The obligation to charge and remit VAT in the EU will shift from sellers to the online marketplaces who facilitate the sale, such as Amazon and eBay for goods of a value of less than 150 EUR. This applies to goods imported from outside the EU into an EU member state, whereas the online platform will be responsible for charging and settling VAT.
Effectively, this means that online marketplaces will be buying goods from sellers and then shipping them to EU end customers. Declaring and remitting VAT will be done through the Import One Stop Shop (IOSS) system, which is an extension of the currently existing Mini One Stop Shop (MOSS) scheme. Online platforms will need to charge VAT at the point of sale, and then pay VAT via the IOSS system. VAT will not be due on import, as to avoid double taxation, which means that customs clearance will be expedited.
Online marketplaces are generally considered to have more resources to deal with tax compliance than individual sellers or small businesses. This is expected to facilitate the collection of VAT on both B2C transactions between EU and non-EU sellers and EU customers.
Alternatively couriers will be able to collect VAT on products of a value of 150 EUR or less, and benefit from a simplified VAT monthly declaration to pay on behalf of their customers.
EU online stores will also be impacted
Online stores registered and operating within the EU will also be impacted, and will be able to use the One Stop Shop (OSS) scheme. This system covers distance sales of goods to end consumers within the EU.
The OSS system allows product suppliers and service providers to file their VAT return in a single EU country, which will simplify tax compliance; tax offices in different EU member states will then need to communicate between each other. Nevertheless, sellers who prefer to file separate VAT returns in different countries will still be able to do so.
How Can Fonoa Help You?
We recommend e-commerce businesses to prepare for these new rules timely. For volume businesses, this means ensuring your IT systems and e-commerce software are ready to handle the complexity these new rules bring and provide you (or your tax accountant) with adequate data to file your tax returns.
At Fonoa, we have developed a platform that is ready for the future and automates all aspects of your e-commerce VAT obligations.
A digital one-stop shop for online retailers with standard integrations to the world’s leading marketplaces and e-commerce tools like Shopify, Woocommerce, Magento and Opencart.