Since July 1, 2021, new rules apply to EU VAT registration obligations for businesses. The new EU VAT reform is centered around two main objectives:
- to simplify tax compliance for suppliers
- to progressively eliminate VAT fraud and reduce the VAT gap (the difference between expected and collected VAT).
How are businesses affected regarding their EU VAT registrations?
Sellers who have EU customers will no longer need to register for VAT in each EU country where they exceed the distance selling threshold, but will benefit from a single VAT registration in one EU country (where they’re established, or a country of their choice, if they’re not established in the EU). This reduces the administrative burden on businesses and significantly simplifies their VAT obligations.
This is now possible with the OSS (One-Stop-Shop) scheme. Once a company registers for OSS, they can de-register for VAT in the EU countries where they were previously VAT registered. They can then start filing a single quarterly VAT return for all their EU sales; tax offices will then communicate relevant info on VAT due between each other.
Do non-EU businesses need to register for VAT?
If you have a non-EU business that is selling services to EU customers, you no longer need your local VAT registrations, but can switch to the OSS system instead. If you’re charged VAT in an EU country, however, you’ll need to apply for a VAT refund separately; you cannot do this via your quarterly OSS return.
If you’re selling goods, you need to take into consideration the location of your customers: if you’re only selling to customers in other EU countries, you can use the OSS system exclusively. If you’re making domestic sales, however, i.e. if your inventory is in the same EU country as some of your customers, you need to have a local VAT registration in that country, in order to pay domestic VAT. This also allows you to sell your products to local businesses, such as distributors and retailers.
Do I need to keep my current VAT registrations in the EU?
In order to decide what to do with your existing VAT registrations, you need to take into consideration the following:
- Where your inventory is stored
- Where your customers are located
- Whether you have domestic EU sales in the countries where you have inventory.
This way, you’ll be able to decide which VAT registrations are redundant, and cancel them.
After that, you can create a plan and a timeline to decide:
- When you can apply for OSS
- When you can cancel your VAT registrations that are no longer needed.
Keep in mind that you need to use the OSS return for all your cross-border sales: you cannot use it selectively for some countries and continue using your VAT registrations in other countries. The only instance when you can use a local VAT registration in parallel to the OSS system is for domestic sales. The OSS system is not obligatory, however: if you prefer using your separate VAT registrations in each EU country where you’re selling, you can still do that.