EU distance sales thresholds and VAT rules for e-commerce in the EU will change with the EU VAT reform that the European Commission has scheduled for July 1, 2021. E-commerce businesses must react quickly and be ready to adapt to the new rules and comply with them after that date, in order to guarantee business continuity and prevent losses and fines.
If you’re operating an e-commerce business and have customers in the EU, you’re concerned by these changes. In this article, we’ll look into the details of the reform you’ll need to take into consideration, and the new procedures you’ll need to implement regarding
- distance selling thresholds
- the new rules for VAT in the EU
- the OSS VAT scheme.
Let’s dive in.
Distance selling thresholds will no longer apply
If you’ve been selling to EU customers for the past few years, you’re probably familiar with the distance selling thresholds that currently exist. In short, each EU country has specific thresholds ranging from 35,000 to 100,000 € for a calendar year for sales in that country. Under this limit (which is different for each country), companies need to charge VAT for their intra-EU transactions in the country of departure of the goods. Once the limit for the calendar year is reached in a given destination country, they need to register for VAT there, and start charging and remitting VAT to the local tax office.
After July 1, 2021, these thresholds for distance selling will no longer apply. Instead, a single threshold of 10,000 € for sales in the whole EU will be introduced in order to simplify VAT compliance for companies and facilitate tax collection.
The rules of the pan-EU 10,000 € threshold
Micro-businesses who sell goods for less than 10,000 € for a calendar year will need to comply with the VAT rules of the country where they’re based, in order to relieve their administrative burden. This limit applies to sales in the whole EU, i.e. the total sales volume to EU customers is considered.
Once a company reaches this limit, though, they will need to charge VAT in the destination country, i.e. where their customers are located, and apply its VAT rules.
The OSS (One-Stop-Shop) VAT scheme
To simplify tax compliance, companies will be able to register for VAT in a single EU country, according to the new OSS (One-Stop-Shop) scheme.
This is an extension of the existing MOSS (Mini-One-Stop-Shop) scheme and will allow businesses to file a single quarterly tax return for all their intra-EU B2C sales.
The main challenge for businesses will be to apply the correct VAT rate at each transaction and for each sale above the € 10,000 threshold.
EU member states have different VAT rates, and it’ll be the sellers’ responsibility to make sure they’re charging the correct VAT in each country where they have customers.
The reform is scheduled for July 1, 2021, which means that after this date, you need to make sure you’re prepared to comply with its rules. If you’re already registered for VAT in an EU country, you can simply keep your registration there and file VAT returns at the same place. If you need to register for VAT, it’s a good idea to check your options and decide in advance where you’d like to register.
What to do?
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.
What’s more, reach out to us and we can help you handle your tax registrations, tax filings and representation where needed.