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Changes to EU VAT rules

Changes to EU VAT rules

The European Union is making some important changes to its VAT rules, which will come into effect from July 1, 2021

The European Union is making some important changes to its VAT rules, which will come into effect from July 1, 2021

Which businesses will these changes affect?

All businesses will be affected, but the changes will mainly affect business-to-consumer (B2C) sales and online marketplaces, including those based within the EU and those based outside that are selling to customers in the EU.*

These changes could lead to simpler procedures and reduced administration. There could also be broader implications for the way you conduct business within the EU.

The three biggest changes are:


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The UK has already introduced changes to its VAT rules in January 2021, following its departure from the EU. For more information on these changes, please download our overview guide


1. Removal of the €22 import VAT exemption

What does it mean?

From July 1, 2021, VAT will be charged on all commercial goods imported into the EU, regardless of value. For consignments with a value of €150 or below, this can either be charged at the time of the sale by using the new Import One-Stop Shop (IOSS), or be collected from the end-customer by the customs declarant (FedEx). 

EU businesses that make online sale of goods which are located outside the EU to customers within the EU, can opt to use IOSS. If you would like to know more about the Import One Stop Shop (IOSS), please see the European Commission website.

How might it affect my business?

EU businesses selling goods from within the EU member states will not be impacted by the removal of the €22 low-value threshold. However, EU businesses selling goods that are imported into the EU will no longer be able to import consignments valued under €22 free of VAT.

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How might it work in practice?

Scenario

An online business in Germany sells one pair of socks worth €10 to an EU consumer that is also based in Germany. This pair of socks is shipped to the consumer from China.

Before July 1, 2021

The shipment can be imported into the EU free of VAT, since the total value of the goods is less than €22.

After July 1, 2021

All shipments will attract VAT regardless of value. VAT will apply at the rate set in the buyer’s country of residence.

2. Introduction of a One-Stop Shop (OSS)

What does it mean?

Businesses will no longer have to register for VAT in every EU country they sell in if they sign up to the OSS. But along with the introduction of the OSS, the EU is also removing the distance selling VAT thresholds regime. This means that businesses will have to charge the VAT rate of the customer’s EU country of residence from their first sale, rather than once a certain threshold has been reached.

How might it affect my business?

Instead of registering for VAT in multiple EU countries, businesses will have the option to complete a monthly OSS filing listing all their pan-EU sales. The VAT would be paid to their home VAT authority, which would then forward it to the appropriate countries.

This could reduce complexity and cross-border VAT compliance costs for online sellers, and potentially facilitate greater cross-border trade.

As an exception to the general rule, EU-businesses selling less than €10.000,00 per annum cross-border on B2C goods and services can charge their domestic VAT rate and report the sales in their domestic VAT return.

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How might it work in practice?
Scenario

A French e-commerce business sells electronics to customers in five other EU countries.

Before July 1, 2021

The business is obliged to register and account for VAT in each EU country and charge customers their domestic VAT rate if sales in the country are above a certain threshold.

After July 1, 2021

The business can choose to close its foreign VAT registrations and file all EU sales through one OSS VAT return in its EU country of registration. It would need to charge VAT at the customer’s domestic VAT rate regardless of the total amount of sales in that country.


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To sign up for the One-Stop Shop (OSS), businesses should register on the OSS portal of their EU Member State from April 1, 2021.


3. Certain online marketplaces becoming the VAT collector

What does it mean?

Marketplaces in scope of the new EU VAT rules can, for instance, be online platforms that facilitate the sales transaction. They enable sellers to sell their goods directly to customers.

Certain marketplaces, rather than the businesses selling through them, will now be responsible for collecting, reporting and remitting the VAT due from the end-customer. The scheme would apply for cross-border or domestic transactions of any value.

How might it affect my business?

Businesses using online marketplaces might be able to de-register for VAT in EU member states, since it will be the marketplace that is deemed to be the supplier of the goods and therefore responsible for collecting the VAT. This could reduce the administrative burden for EU sellers.

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How might it work in practice?
Scenario

An EU-based e-commerce business sells a €90 vase to an EU customer in another member state, via a qualifying online marketplace.

Before July 1, 2021

The EU business selling the vase is responsible for charging the customer VAT and remitting it to the authorities.

After July 1, 2021

The marketplace the vase is being sold through is responsible for collecting the VAT from the customer and ensuring it is passed to the relevant authorities.


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More details on using the OSS are available from the Publications Office of the European Union. Information for sellers can be found here, and information for electronic marketplaces can be found here.


*EU countries are: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Please note that, under the terms of the EU-UK Joint Protocol, Northern Ireland will remain part of the EU VAT area for goods. This means that these new provisions will also apply to goods imported into Northern Ireland from the rest of the world.

The information provided does not, and is not intended to, constitute legal and/or tax advice; instead, this information is for general informational purposes only. This information may not constitute the most up-to-date legal or other information. Readers of this information should contact their own advisor to obtain advice with respect to any particular legal and/or tax matter. All liability with respect to actions taken or not taken based on the contents of this site are hereby expressly disclaimed. The content on this posting is provided “as is”; no representations are made that the content is error-free.