Starting 1 July 2021, the new EU VAT rules for ecommerce are coming into effect. These will significantly impact the way VAT should be collected and accounted for on distance sales of goods to private individuals in the EU.
When the goods are located outside the European Union at the time when an order is finalised and a payment accepted, the value of the consignment in which the items are shipped to the customer will be key to determine the VAT treatment.
An Import One Stop Shop designed for low value consignments
The new IOSS scheme will be available to all ecommerce businesses to account for the VAT due on the distance sales of imported goods to EU consumers, when the value of the consignment does not exceed EUR 150.
If you are selling on a marketplace (for example, Amazon or eBay) however, the marketplace should be deemed liable for collecting the VAT on your behalf and report it in its own IOSS return. VAT reporting would no longer be your responsibility in this case.
What happens if the value of a consignment tilts over EUR150?
As soon as the value of the goods you are shipping to the same consignee, in a single consignment, exceeds EUR 150, this parcel is no longer eligible for IOSS.
Distance sales of high value goods on your own website
When making a distance sale of goods in consignments with a value exceeding EUR 150, VAT is due upon importation.
In this case, you need to decide on which terms you are selling and importing the goods. Your decision will be reflected in the incoterms you use to ship the goods.
If you decide to be the importer of record for the goods, you will need to remit import VAT to the tax authorities in the EU Member State of importation, as well as to register for VAT in that member state in order to recoup the import VAT paid on your periodic VAT return. This will not be your customer’s responsibility. The subsequent post-import transfer of goods to the customer would then be reported on your local VAT return (if the customer is located in the same EU Member State) or on your Union One Stop Shop return (if the customer is located in a different EU Member State)
Alternatively, if you decide to make your customer importer of record, the liability to remit the import VAT will shift from you to your customer when they receive the goods.
This option might relieve you from needing to register for VAT locally, but it may not be the best option in terms of customer experience. For example, customers can refuse to receive the goods as they did not expect the additional taxes to be collected prior to delivery.
Distance sales of high value goods on a marketplace
The responsibility of marketplaces to charge and collect the VAT from EU customers on behalf of sellers only applies to goods imported in consignments with a value not exceeding EUR 150.
This means that as soon as the value exceeds this threshold, you remain liable for the import VAT if you decide to be the importer of record for the goods.
High value imported goods sold on marketplaces are beyond the scope of the new changes and therefore, current custom procedure will continue to apply, as explained in the previous paragraph, although it is still always important to check local legislation.
Importing inventory into the EU
With the new ecommerce changes, it might make sense for your business to move inventory into the EU and make distance sales of goods from there.
When you import goods in bulk – to store them in a warehouse or fulfillment center – you remain responsible for the customs clearance and import VAT due at importation.
However, the import VAT you have incurred when moving the goods through the EU border can be reclaimed at a later stage in your VAT returns.
Additionally, some Member States such as the Netherlands or Belgium offer Import VAT deferment schemes which ease the strain on importers’ cashflows by allowing them to account for import VAT in their VAT return rather than at the border.
Once your goods have been cleared through customs and released into free circulation in the EU, you might be able to opt in for the new One Stop Shop (OSS) to account for the VAT due on the intra-community distance sales of goods you will be making to EU consumers.
How can you prepare for the upcoming changes?
Starting 1 July 2021, the value of the distance sales of goods imported in parcels will determine whether you can benefit from the new EU VAT simplifications or not. Import VAT will be due on goods imported into the EU regardless of their value. If IOSS is used then the import VAT will not be due at the border on goods with an intrinsic value of less than EUR 150. As soon as the value of the online sales of the imported goods you make goes over the EUR 150 limit, VAT is due upon importation.
When importing these higher value goods, you will need to make a commercial decision on whether to be the importer of record of your goods or shift the VAT liability onto your customers.
The ecommerce VAT changes rolled out throughout the EU will only affect these low value consignments, so you need to be prepared to identify the variables that will determine whether import VAT is due at the border or if the marketplace you are selling on will be collecting the VAT on your behalf.
Taking into account any country specific legislation
It is worth noting that VAT obligations may differ from one EU country to another. For example, France has enacted local legislation not contained within the wider EU ecommerce VAT Package that makes online marketplaces and electronic interfaces responsible for collecting VAT on high value consignments imported into France from third countries, effectively making online marketplaces responsible for all consignments sold on their platforms to customers in France that originate from outside of the EU.
More than ever when it comes to VAT changes, understanding how you bring goods into the EU will affect your local VAT obligations. This will be key to continue trading confidently when the ecommerce VAT package comes into effect.