As of today, July 1, 2021, EU VAT reform came into effect. That reform will significantly affect B2C retailers who have customers in the EU. Besides that, the administrative and tax burden will shift from sellers to online marketplaces in some instances, making marketplace operators responsible for VAT.
In this article, we’ll look at the key changes for B2C retailers, such as:
- The introduction of the OSS (One-Stop-Shop) scheme for declaring and remitting VAT
- The end of VAT exemption for low-value imported consignments
- The shift in marketplaces’ VAT obligations.
Let’s dive in.
What are the things suppliers need to consider?
Non-EU businesses who have EU customers need to assess their current sales processes, and adapt to the EU VAT reform. Here are the different elements you need to consider, and that will affect your tax obligations:
- Inventory location. Where you’re shipping products from and how they reach the end customer will determine how VAT is charged and remitted. Are you shipping goods from within the EU, or are you importing goods from a non-EU country?
- Pricing and VAT. Either you or the marketplace will need to pay VAT on all transactions to end customers in Europe. Will this affect your pricing structure, profitability, and competitiveness?
- Technologies used. You might need to use new software tools to assess how much VAT is due on each transaction, charge it correctly, and store records.
What are the key changes?
Let’s now look into the most important changes to EU VAT.
The introduction of the OSS (One-Stop-Shop) scheme
At the moment, distance selling thresholds for each EU country exist. Based on these thresholds, retailers need to either:
- If they’re under the threshold, charge VAT according to the rules of their country of establishment, or,
- If they’re above the threshold, according to the rules of the destination country, which means that they need to register for VAT.
With the introduction of the OSS system, sellers will need to charge VAT according to the destination country’s VAT rate, if they reach the annual pan-EU threshold of €10,000. They’ll be able to register for VAT in a single EU country, and declare and pay VAT there. If they have inventory in multiple EU countries, however—for example, if they’re using a Fulfilment by Amazon (FBA) program—they’ll need to keep their VAT registrations there.
Low-value imported goods will no longer be VAT exempt
The €22 VAT-exemption threshold for imported goods will no longer apply.
For all shipments of €150 or less, VAT can be collected at the point of sale, and reported via a single monthly IOSS (Import-One-Stop-Shop) declaration. If the seller doesn’t use the IOSS system, the buyer will need to pay import fees and VAT.
Marketplaces will be responsible for VAT in some instances
Marketplace operators of online marketplaces that facilitate sales transactions will need to collect VAT in the following two instances:
- On imported items of a value of less than €150
- On items of any value sold by non-EU sellers and stored in the EU.
For this reason, marketplaces also need to adapt their sales and administrative processes and be prepared to handle their new tax obligations.