After July 1st, 2021, a new VAT scheme called One-Stop-Shop (OSS) will be introduced. It will further simplify tax reporting and compliance for B2C sellers who provide goods or services to customers in the EU. In their OSS VAT return, they’ll be able to declare all their sales transactions to EU customers.
The current distance selling threshold rules will no longer apply; instead, an EU-wide threshold of €10,000 will be introduced. Under this threshold, B2C goods will be subject to the VAT rules of the member state from which they are dispatched, and above it, of the destination member state.
Goods imported to the EU of a value of less than €22 will no longer be VAT-exempt. Instead, imported products up to €150 will be covered by a single report scheme, called the Import One-Stop-Shop (IOSS). Postal operators or courier firms will be able to collect VAT on imported goods from consumers via a monthly payment.
Marketplaces that facilitate the sale and delivery of products to EU customers will be liable for EU VAT obligations.
How Will This Impact Merchants?
Prior to this regulation, EU member states had varying revenue thresholds from €12,500 in Portugal to €65,000 in Italy. These thresholds refer to the revenue a seller made to that country in the past 12 months and are deemed liable to register for local VAT number and charge local VAT if exceeding the relevant threshold.
However, with an EU-wide threshold of €10,000, a significantly larger number of merchants will have to start charging local VAT in countries across the EU where they sell their goods / services, even if their volumes to those countries are low. If an Italian merchant sells €100,000 worth of goods to Germany but has minor sales to other member states, it will nevertheless have to start charging local VAT to all transactions across the Union.
VAT rates vary quite a bit across the EU (see here), and can be as high as 27% in Hungary, to 17% in Luxemburg.
Why is this relevant for pricing?
If a merchant keeps their prices fixed and considers them inclusive of any tax that needs to be imposed on cross-border transactions - they will witness margin fluctuations as they sell to different EU countries. For eg., if a product is priced at €50 inclusive of VAT, then sellers margin in Hungary will be 10% lower than in Luxembourg.
This will impact sellers of physical products more than sellers of services and digital products due to inherent gross margin differences across the categories, so we can expect more drastic pricing changes across eCommerce.
VAT Exclusive Pricing
A natural response to the shift in the indirect tax treatment of cross-border transactions across the EU would be to start pricing exclusive of VAT - similar to how merchants in the US price their products exclusive of US Sales Taxes.
Due to the above, we can expect the rise of country-specific marketplace websites and checkout sections, where products would be priced differently based on the applicable VAT - making products relatively more expensive in Hungary and Denmark than in Italy or Bulgaria.
How can our solution help you to comply with these regulations?
Fonoa Tax seamlessly automates indirect tax rate calculation in 80+ countries across the globe and takes into account revenue sellers made to each specific country. Revenue tracking helps us understand whether sellers need to register for VAT locally and start applying local VAT rates to their transactions.
Reach out to us, and we will help you to comply with the upcoming regulations.