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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 based outside of the EU, as well as EU-based businesses selling to consumers 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 into 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).

How might it affect my business?

If your business is based outside the EU, it will no longer be able to export shipments valued under €22 to EU consumers free of VAT.

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How might it work in practice?

Scenario

An online business in China sells one pair of socks worth €10 to an EU-based consumer.

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 an Import One-Stop Shop (IOSS)

What does it mean?

For e-commerce consignments of €150 or below, the EU is introducing an optional Import One-Stop Shop (IOSS) to clear goods through customs. This will allow sellers or online marketplaces to charge VAT at the point of sale and remit it directly to the authorities. This can make the process simpler and more transparent for the consumer, and helps to ensure efficient customs procedures.

If the IOSS is not used, FedEx will collect the VAT from the customer prior to delivery and pay it to the authorities.

How might it affect my business?

To sign up to the IOSS, non-EU sellers will have to register in an EU member state if they are already established in the EU, or, if not, appoint an intermediary to register and declare the VAT on their behalf. They will then need to provide their IOSS number to the customs declarant (FedEx).

VAT for their EU sales will be submitted via a monthly tax return in the nominated EU member state, which will then forward the VAT declaration and payment to the appropriate countries. As a consequence, businesses will no longer have to register for VAT in every EU country they sell in.

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How might it work in practice?
Scenario

A U.S. e-commerce business sells electronics with a value of less than €150 to customers in five EU countries.

Before July 1, 2021

The U.S. e-commerce business is obliged to register and account for VAT in each EU country.

After July 1, 2021

The U.S. e-commerce business can choose to close its foreign VAT registrations and register for IOSS in one EU country, charging VAT at the point of supply. Or the business can continue as they do today, with their customers paying VAT on importation.


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To sign up for the Import One-Stop Shop (IOSS), businesses should register on the IOSS portal of an EU Member State from April 1, 2021. Businesses not already established in the EU will normally need to appoint an EU-established intermediary to fulfil the VAT obligations.


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 their sellers, will now be responsible for collecting, reporting and remitting the VAT due from the end-consumer if they register with the IOSS. The scheme would apply for non-EU sellers for transactions up to €150.

How might it affect my business?

If a marketplace has opted for the IOSS, businesses selling through it must use the marketplace’s IOSS number and provide it to the party responsible for making the customs declaration (FedEx).

Businesses using several marketplaces to sell their goods should keep clear evidence of the sales carried out via each. They should also provide the corresponding IOSS number for each sale to the customs declarant.

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How might it work in practice?
Scenario

An e-commerce business based in China sells a €90 vase to an EU customer, via a qualifying online marketplace that opted for the IOSS.

Before July 1, 2021

The customer buying the vase from the non-EU seller is responsible for paying the VAT on their purchase at the time of importation.

After July 1, 2021

The marketplace the vase is being sold through uses the IOSS and becomes responsible for collecting the VAT from the customer at the time of sale, ensuring it is passed to the relevant authorities.


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More details on using the IOSS and the other important changes to the EU’s VAT rules are available from the Publications Office of the European Union.


*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.