The European single market is a formidable playground for businesses as it offers free movement of goods, capital, and services, making trading internationally less burdensome thanks to the absence of internal borders. As a result, cross-border trade can thrive and be more competitive, which is always a plus for consumers. For goods sold in the EU, the rules will differ depending on whether you source them from within the EU or from outside the Single Market.
We have previously shared some main tips in a guest post on importing from China into the European Union in this guide. Today, we want to focus on the VAT implications of doing so. As you might know, VAT is an ever-changing topic and the next couple of years will bring a new set of EU regulations that will drastically impact how to deal with import VAT when importing outside the EU.
From who will be responsible for collecting the VAT, to how to report the collected VAT amounts, the new EU regulations for ecommerce are about to bring sweeping changes for sellers importing from overseas territories such as China.
In this article we will be looking at the upcoming regulations you need to be aware of to import confidently into the EU market.
The end of the low value consignment relief
Currently, goods with a value up to 22 EUR are VAT exempt when imported from third countries into the European Single Market. However, from 2021 this low value consignment relief will be abolished across the EU, making all goods liable for import VAT.
The abolition of the 22 EUR low value consignment relief means that suddenly a much higher volume of small parcels would have to be processed by EU customs operators. So, in order to mitigate the impact of this change on customs capacity, the EU is developing a new electronic import scheme which you will be able to use to report the import VAT collected on these goods.
A new electronic scheme to use: The Import One Stop Shop
Due to launch in 2021, the new electronic scheme called Import One Stop Shop will enable businesses to account for the VAT charged on consignments with a value below 150 EUR imported into the EU for onward sale. The VAT will be paid by customers at the point of sale and remitted to the European tax office by the supplier in a single VAT return.
The ‘IOSS’ will work as an extension to the current Mini One Stop Shop and will be accessible for both EU and non-EU businesses.
If you are based in the EU, you will be able to use the IOSS from your country of establishment to remit the VAT due on imports of goods up to 150 EUR.
If you are based outside of the EU, you will need to appoint a local intermediary to be able to benefit from the IOSS simplification when importing from overseas territories into the EU.
Once you are registered on the scheme, you will get an IOSS Identification number which will need to be labelled on your parcels to prove that VAT has already be collected and that the goods can be released quickly at EU customs.
A simplified custom declaration
Should a business not use the IOSS for any reason, a simplified custom declaration will be introduced to declare consignments with a value up to 150 EUR imported from third countries. This new ‘super-reduced’ custom declaration will require three times less data than the standard forms and ease the additional burden for customs operators and traders when this change comes into place.
Importing goods from Asia through a marketplace
Selling on a marketplace can be a good option to start your online business. Significant changes are also being introduced for sales of imported goods made in the EU through a marketplace.
Currently, marketplaces such as Amazon don’t take any responsibility in respect of collecting VAT on goods sold through their platform. But that is about to change.
From 2021, when a marketplace ‘facilitates’ a sale, it will be deemed as the supplier of the following goods:
- Goods imported from non-EU countries by EU and non-EU sellers.
- Cross-border and domestic sales by non-EU sellers in the EU.
The VAT will be due at the point of sale, and the marketplace will be liable for remitting the amounts collected to the relevant tax authorities on your behalf.
What is understood by ‘facilitating the sale’? The European Commission has indicated that a marketplace is facilitating a sale when the following conditions are met:
- It controls the terms and conditions of sale
- It authorises the payment from the customer for the goods
- It controls directly or indirectly the delivery of the goods to the end customer.
Alternatively, when a marketplace merely authorises the charge of the customer for the payment of the goods, or redirects the consumers to the seller’s website, it will not be deemed to be supplying the imported goods and the VAT liability will still lie with the seller.
By shifting the VAT liability from non-EU sellers to marketplaces, the European Commission is basically making sure that VAT is duly charged and collected in the EU.
Importing goods and holding stock in the EU
Importing goods from outside of the EU and storing them in an EU warehouse will still trigger a VAT registration obligation in the country where your goods are held. Your local sales will have to be declared in your local VAT return, whereas you cross border sales from your warehouses can go on the new One Stop Shop Scheme.
The current e-commerce VAT context
Understanding the current EU VAT context is essential to grasp the introduction of these new regulations.
The EU VAT legislation has not been able to keep up with the boom in online shopping in recent years, and consequently, member states are struggling to collect vast amounts of unpaid VAT each year.
Non-EU retailers and online platforms have been in the EU Commission’s sights because of the many loopholes they have managed to benefit from when it comes to charging VAT to EU consumers.
The new 2021 rules will aim to create a level playing field for EU and non-EU online sellers who aren’t currently competing on an equal footing when it comes to charging VAT to customers. Additionally, fit for purpose VAT rules will ensure that VAT is being charge on imported goods which is not always the case at the moment.
What you need to remember
Change is coming in the EU and is likely to affect your VAT liability when importing goods from China into the Single Market. In this context, there are a few things to keep in mind over the next few months.
- The value of the parcels you import from outside of the EU for onward sale will dictate whether you are able to use the new IOSS scheme. If you decide to join this scheme, you will need to appoint an EU-based intermediary is you are an overseas seller. Remember to take the costs of an intermediary’s services into considerations when deciding to use the IOSS or not.
- Selling though a marketplace, as a non-EU business may relief you from the burden of registering and collecting VAT as marketplaces will be deemed as suppliers for these goods under certain conditions.
- Reviewing your supply chain and where your stock is located will be important to understand whether you need a local VAT registration or not.
- Lastly, keep an eye on VAT changes to ensure you always make informed commercial decisions when it comes to your supply chain.
The package of new VAT measures we have covered in this article was originally due to come into force as of 1 January 2020. However, the European Commission has proposed to postpone the introduction of this until 1 July 2021. This decision still needs to be approved by the EU Council.