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EU 2021 VAT changes: What’s in store for July 1st

map of the world with locations marked in europe and shipping boxes with arrows pointing to destinations

Starting July 1st, 2021, the EU will be making substantial changes to cross-border VAT rules. This is designed to bring regulations in line with shifts in consumer behavior and to combat VAT fraud more effectively. 

These new rules will impact EU-based businesses that sell goods between EU countries, and non-EU businesses that are exporting products to EU customers. The intention is to simplify the management of VAT for those doing business in the EU and remove the administrative burdens of the existing system.

In this post, we’re going to cover what each of these changes means for online sellers, marketplaces, postal carriers, and EU consumers.

What changes are coming into effect on July 1st 2021?

  • Import taxes will be payable on all goods from €0 EUR, removing the previous low-value import threshold of €22
  • Introduction of the Import One Stop Shop (IOSS) for goods imported from outside the EU valued up to €150.
  • The Expansion of the Mini One Stop Shop (MOSS) into the One Stop Shop (OSS).
  • Special arrangements to simplify imported goods with a value of less than €150 if IOSS is not being used.
  • Distance selling thresholds will be replaced by one unified threshold of  €10,000.
  • Online marketplaces will be responsible for collecting VAT and meeting record-keeping requirements.

Why are the rules changing?

Ecommerce sales have skyrocketed as a result of the COVID-19 pandemic. With physical off-limits for much of 2020, this has widened the imbalance between EU businesses and cross-border online sellers. The result is millions of euros in tax and duties going uncollected, especially on low-value items. With ecommerce sales in the EU are set to hit $569 billion USD by 2025, this equals a lot of disappearing tax revenue.

With traditional collection systems no longer fit for purpose, the EU has taken steps to ensure:

1. EU businesses are not disadvantaged by the growth of ecommerce
2. The EU as a whole continues to benefit from cross-border ecommerce activity

Who will be affected by these changes?

Consumers. Due to the removal of the low-value import threshold, ecommerce merchants outside the EU will be responsible for collecting and remitting VAT on ALL online purchases starting July 1st. This will result in an increase in the cost of online purchases to bring them in line with domestic EU prices. Furthermore, there will be some cases where consumers are responsible for paying VAT directly to the postal carrier. 

Parcel carriers. Couriers will need to be provided with information for customs clearance upfront from online sellers. They may also need to charge additional clearance fees for collecting VAT on the customer’s behalf if a business isn’t signed up to IOSS.

Online marketplaces. So-called ‘online electronic interfaces’ (referring to online marketplaces, platforms, and websites) will now be considered suppliers if they’re facilitating the sale and import of goods into the EU under the value of €150. This makes them responsible for collecting and reporting VAT.

Online sellers. The new unified distance sales threshold means that smaller online merchants will be able to charge the VAT rate of the EU country they’re shipping from, up to a value of €10,000. The changes taking place on July 1st also mean that online sellers using third-party online marketplaces are no longer liable for collecting and reporting VAT. 

Let’s dive into these changes in more depth.

Which countries are affected?

These changes will affect all EU member states, including:

Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland

Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden

Note this does not include Norway, Switzerland, or the United Kingdom.

Change 1: Import taxes will be payable on all goods from €0 

From July 1st, all consignments entering the EU will be liable for VAT, abolishing the previous €22 threshold which allowed consumers to avoid paying VAT on low-value online purchases. The rate of VAT charged will depend on which member state the customer is in.

Austria: 20%
Belgium: 21%
Bulgaria: 20%
Croatia: 25%
Cyprus: 19%
Czech Republic: 21%
Denmark: 25%
Estonia: 20%
Finland: 24%
France: 20%
Germany: 19%
Greece: 24%
Hungary: 27%
Ireland: 23%

Italy: 22%
Latvia: 21%
Lithuania: 21%
Luxembourg: 17%
Malta: 18%
Netherlands: 21%
Poland: 23%
Portugal: 23%
Romania: 19%
Slovakia: 20%
Slovenia: 22%
Spain: 21%
Sweden: 25%

Here is an example of a consumer in Italy purchasing a pair of sneakers:

Price (excludes VAT)VAT (22%)Total
€117€33€150
Shipping fee€15.60€4.40€20

Change 2: Introduction of the Import One Stop Shop (IOSS) for goods imported from outside the EU valued up to €150.

This is one of the biggest changes to the current VAT system, so we’re going to dive into this in more depth.

What is the IOSS?

The IOSS stands for Import One Stop Shop and is designed for non-EU merchants making distance sales to EU consumers. The online portal is designed to simplify compliance with the new VAT regulations on ecommerce.

How does the IOSS work?

The IOSS allows suppliers to collect, declare and remit VAT to the relevant tax authorities on goods worth less than €150, rather than forcing the buyer to pay VAT once goods have arrived. When VAT is charged at the point of sale, this can be declared and paid by the merchant on a monthly basis via the IOSS portal. 

What are the advantages of the IOSS?

The IOSS effectively provides a fast lane for imported goods. It provides registered businesses with an IOSS number that can be verified by customs officials and postal carriers. This ensures that goods can move around the EU effectively and avoid long processing times.

How can businesses register for IOSS?

Businesses can register for the IOSS through the IOSS portal of any EU member state. If you aren’t based in the EU, you’ll require an EU-established intermediary to undertake the process for you.

Change 3: The Expansion of the Mini One Stop Shop (MOSS) into the One Stop Shop (OSS)

The Mini One Stop Shop (MOSS) has allowed EU-based businesses providing electronic services to register for VAT in one member state, rather than having to register in every country where their service is offered. From July 1st, this streamlined VAT process is expanding to all B2C businesses.

Registering for OSS means that businesses will only need to file one VAT declaration and payment for all activity conducted in the EU (and in only one language). This massively simplifies the VAT process and makes it easier to make timely payments.

Change 4: Special arrangements to simplify imported goods with a value of less than €150 if IOSS is not being used

If an online seller doesn’t want to use the IOSS or is having difficulties collecting VAT at checkout, they have the option to make the customer responsible for paying VAT via the postal carrier either before or during delivery. This is possible if the following circumstances apply:

  • The value of the consignment is less than €150
  • The EU country where goods are being received in the same as the country where they were imported

Change 5: Distance selling thresholds will be replaced by one unified threshold of  €10,000

Currently, EU countries are responsible for setting their own distance selling thresholds i.e., the point at which an online seller is liable to pay VAT on goods sold in their jurisdiction, as well as the country they’re based in.  For example, Germany has a distance selling threshold of €100,000, while France’s is only €35,000. 

On July 1st, individual thresholds will be replaced by a single threshold of €10,000 that covers the entirety of the EU. This means that EU-based merchants will not have to forecast at what point they’re likely to liable for VAT in different areas.

Change 6: Online marketplaces will be responsible for collecting VAT and meeting record-keeping requirements.

New rules will see online marketplaces such as eBay, Etsy, and Ali Express deemed as ‘suppliers’. This gives them two key obligations:

  • Collecting and accounting for VAT on all sales via either IOSS or special arrangement.
  • Record-keeping of all transactions which need to be maintained for a ten-year period.

This replaces previous legislation that made online sellers responsible for collecting and reporting VAT. An online marketplace will be considered a supplier under these new rules if:

  • Goods imported to the EU have a value not exceeding €150.
  • The marketplace is not established in the EU but is making sales to consumers in the EU.

These changes will take a huge burden off individual sellers and may allow them to suspend VAT registration.

What are the benefits of the new rules?

Removing the low-value import threshold is designed to create a fair climate of competition by requiring all non-EU sellers to pay import taxes, preventing outside companies from undercutting EU competition.

The introduction of the IOSS and unified distance selling threshold will massively simplify the current regime of multiple thresholds for different EU countries, which creates a huge administrative burden for both businesses and governments. Consolidating the process for registering and VAT declarations will result in less paperwork and fewer delays in products going to market.

Where to find more information:

Sippin n’ Shippin podcast: Shipping into the EU
VAT for ecommerce
All you need to know about the import one-stop-shop (IOSS)
Modernizing VAT for cross-border ecommerce

Contact:

Shaun King
KINGS VAT LTD
M.+44 (0) 7834 273791
shaun.king@kingsvat.co.uk

Get in touch to see what we can do for you.

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