EU: Imports from China after the VAT Reform on July 1, 2021

June 9, 2021

The EU VAT Reform scheduled for July 1, 2021 will have a big impact on imports from non-EU countries, such as China. Imports of Chinese goods have been rapidly increasing in the past couple of years, and Chinese online marketplaces, oriented towards international buyers, such as, for example, Aliexpress, Wish and Alibaba were major actors in this trend. Dropshipping through Amazon and eBay, or via the sellers’ own websites, also drove up imports from China into the EU.

In this article, we’ll look at how the new EU legislation will impact imports from China. 

The current threshold for low-value goods

At the moment, goods of a value of less than €22 are exempt from VAT and import duties when they’re imported in the EU. In practice, sellers often under-declared the value of the goods, in order to avoid customs charges for their end customers. Even for B2B goods, the importer would sometimes request from the seller to put a value that was lower than the real one. A self-declaration was accepted to be a sufficient proof of payment, which made this type of fraud difficult to detect.

The European Commission deemed these practices erosive for the EU VAT system, as it not only results in a VAT gap, but also puts B2C sellers from the European Union at a disadvantage. The July 2021 VAT Reform seeks to resolve these issues. 

The Import Control System 2 (ICS2)

A new system of increased customs controls, called the Import Control System 2 (ICS2), was introduced on March 15, 2021. The EU introduced new procedures of border control and information exchange between EU countries, in order to guarantee that adequate safety measures are taken when importing goods into the EU, and to minimize fraud. 

Up to now, insufficient or unclear descriptions used to accompany imported goods, and their value was under-reported. Often, sellers would declare them as gifts or samples, although they were actually purchased online.

Since March 15, 2021, different systems were put in place to prevent this from happening. Namely, sellers and importers are required to accurately identify the goods in each parcel, and add a HS (Harmonized System) code for the exact type of product. HS codes are used to identify traded goods globally. During the first phase of the rollout, European couriers are affected, as well as third-country postal operators. Starting from March 1, 2023, this system will apply to all air and express couriers. From March 1, 2024, all importers will be affected, including those who ship by sea, road or rail.


The abolition of the low-value threshold and its consequences 

With the introduction of the EU VAT reform, the €22 value threshold will be abolished. Customers will need to pay VAT and customs duties on all imported goods. Nevertheless, for goods of a value under €150, only VAT will be due, and couriers will be able to use an expedited import procedure, where they pay VAT once a month. 

The import of B2C goods will be affected by these changes, as marketplaces, sellers and couriers will now need to start charging VAT. B2B goods shouldn’t be affected in the same way.