The EU VAT reform scheduled for July 1, 2021, will have a profound impact on online marketplaces, such as Amazon, eBay, Cdiscount, Etsy, and others. After that date, they’ll be considered the deemed supplier for third-party B2C intra-EU transactions that they facilitate.
This means that they’ll need to calculate, collect and remit VAT on these sales. They won’t be responsible for other sellers’ obligations, though, such as the product’s warranty or other liabilities.
There are a few considerations to make.
What are facilitating online marketplaces?
Online marketplaces are electronic interfaces that facilitate the sales of products. They can be in the form of a phone application, a portal, a platform, or a webpage, for example, and they are the point of contact between sellers and buyers, in order to facilitate a taxable sales transaction.
To be considered as facilitating online sales, marketplaces need to meet several requirements, such as
- They need to be in control of the terms and conditions of the transaction
- They authorize the charge to the end customer’s preferred payment method
- They order or deliver the products.
They’re not considered to be facilitating sales if they only propose:
- Payment processing services
- Products' listings or advertisement
- Redirecting users to other platforms and marketplaces.
As you can see, the list is fairly specific on which platforms are considered facilitating marketplaces.
Which sales transactions are concerned?
Not all sales transactions are in the scope of these new rules. Marketplaces will only need to collect VAT on:
Imported products, both by EU and non-EU businesses, of a value lower than 150 €.
Products sold by non-EU businesses of any value.
For these two types of transactions, online marketplaces become the deemed supplier of goods and need to charge and remit VAT in a two-step VAT process.
The two-step VAT process for marketplaces
Once a customer purchases a good (from one of the two types described above), two transactions actually take place instead of one:
- The marketplace purchases the product from the supplier. For goods that are located in the EU at the time of the purchase, this is considered a B2B transaction, which is, therefore, zero-rated. For imported goods, the transaction is considered to happen outside of the EU.
- The marketplace sells the product to the end customer. For this, it needs to charge the correct VAT percentage, based on the customer’s country (i.e. the destination country).
After July 1, 2021, marketplaces will have the responsibility to correctly identify for which transactions they are the deemed suppliers, and to charge VAT accordingly, by applying the two-step process above. Marketplaces that are operating in the EU will therefore have a bigger administrative burden, while sellers’ tax compliance will be simplified in some instances.
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.