From July 1, 2021, the new EU VAT reform will affect cross-border trade in the EU (including imports from abroad). VAT legislation in the EU was outdated and not adapted to the realities of online trade, especially at its current scale.
Sellers on Amazon will also be affected by the changes, and Amazon’s Pan EU program will need to adapt to the new legislation. In this article, we’ll look at the effects the new reform will have on B2C trade via Amazon.
Let’s look at the changes.
Distance selling limits: national thresholds vs. the new pan-EU threshold
National thresholds for distance selling in the EU will be abolished after July 1, 2021. They varied from country to country, meaning that each supplier needed to track sales to each EU country. After July 2021, there will be a common threshold of €10,000 annually for the whole territory of the EU. Under that limit, sellers charge VAT by applying the country of origin’s VAT rules; above it, they need to apply the VAT rules of the destination country (where the end customer lives).
This means that a huge portion of EU sellers, including those who have a relatively small turnover (but above €10,000), will need to comply with the VAT rules of each EU country in which they have customers, and potentially file plenty of VAT registrations. To simplify VAT compliance, the EC introduced the One-Stop-Shop (OSS) scheme; if sellers use it, they’ll be able to register in a single EU member state, and declare and remit VAT there.
The problem with OSS and fulfillment centres
Online retailers who use fulfillment centres (of Amazon, Cdiscount, or Zalando, for example) in an EU country different from theirs will not be able to use the OSS scheme.
Using cross-border fulfillment centres means that intra-community transfers and intra-community acquisitions regularly take place. Sellers cannot report these two types of transactions via the OSS scheme, because they’re B2B transactions. Instead, they need to declare them via local VAT returns, and therefore complete a number of local VAT registrations. Potentially, this will complicate VAT compliance for EU sellers who use fulfillment centers in the EU.
Unfortunately, it won’t be possible simply to report those transactions with a local VAT return and use the OSS scheme for the rest of your B2C sales. It’s also not possible to not declare these transactions: cross-border shipments by Amazon (or other online marketplaces) are automatically subject to tax.
If you use the OSS scheme, you need to use it for all transactions, and for all countries. You cannot decide to file local VAT returns in some countries, and use OSS returns for others. As a result, sellers who use cross-border fulfillment centres will need to register for VAT in all EU countries where they have customers.
Amazon and other fulfillment centre operators will need to adapt to those changes, in order to provide solutions for their EU sellers.