Since July 1, 2021, online marketplaces are the deemed supplier for goods of a value of less than €150 imported into the European Union, and will be responsible for charging and remitting VAT.
This is a part of the EU VAT reform that aims to facilitate both VAT compliance for businesses and VAT collection for governments, and reduce the EU’s VAT gap. It will affect both sellers and customers alike. Let’s see how.
How are marketplaces and consumers affected by the EU VAT reform?
Online marketplaces, or electronic interfaces (EI) that facilitate online sales, as the European Commission refers to them, will now be responsible for collecting, declaring and paying VAT on some EU transactions.
Which marketplaces are affected?
Marketplaces that are affected by the reform include, among others:
All marketplaces that control the terms and conditions of the sale, authorize the charge to the end customer, and/or participate in the delivery of the goods, are impacted. The scope of the reform is intentionally large, as this allows EU governments to have better visibility into cross-border and import trade, and also to simplify VAT collection by making marketplaces responsible for VAT, rather than individual sellers.
Which transactions are in scope?
Online marketplaces will collect VAT in two cases:
- On items imported into the EU, when their value is under €150
- On items sold by non-EU sellers, regardless of their value, and regardless of the inventory’s location (inside or outside of the EU).
Consumers will not have to do anything additional: VAT will be automatically charged at checkout on imported items that cost less than €150. In fact, this will probably improve the customers’ experience in some cases: prior to that, customers sometimes needed to pay import duties and VAT themselves; this process will now be improved via the IOSS return that importers can use (including, in this case, marketplaces).
What are the other things that change?
Goods of a value of less than €22 are no longer VAT-exempt
Low-value imported goods (of less than €22) will no longer be VAT-exempt. VAT will be due on all B2C sales in the European Union, regardless of the price. This will affect the prices of low-value goods imported from outside of the EU and sold on Amazon, eBay, AliExpress and other markets, which are expected to increase, proportionally to VAT charges.
Transactions will be split in two for VAT purposes
When a buyer purchases an item from a marketplace, and the item is stocked in a non-EU inventory, the transaction will be split in two:
- The marketplace purchases the product from the seller, which is a B2B, zero-rate transaction.
- The marketplace sells the product to the end customer, which is a B2C transaction subject to VAT, that the marketplace charges from the customer.
This 2-step process is only for the purposes of charging and collecting VAT. In practice, the buying experience will be the same. Online platforms, such as Amazon, eBay, Etsy, or others, will then be responsible for declaring and settling VAT in the EU.