EU July 2021 ecommerce VAT Package
- Jan 19, 2021 | Richard Asquith
On 1 July 2021, the 27 member states of the European Union (EU) will introduce sweeping reforms to the VAT obligations for B2C ecommerce sellers and marketplaces.
This includes the following major changes:
- Launch of the One-Stop Shop EU VAT return;
- End of low-value import VAT exemption, and introduction of the Import One-Stop Shop (IOSS) return; and
- Making marketplaces deemed supplier VAT.
As a result of these flag-ship reforms some sellers will now be able to report all of their pan-EU sales on a single VAT return in their home country, instead of needing multiple VAT registrations across the EU.
The aim is to boost cross-border online trade and promote trade across the EU’s digital single market by reducing compliance obligations. The UK has already implemented VAT marketplace liabilities reforms from 1 January 2021. The EU's 2021 VAT ecommerce package was delayed, to 1 July 2021 – original date 1 January 2021.
The changes also seek to tackle the stubborn €5 billion ecommerce VAT fraud gap, with member states looking to close import loopholes and co-opt online marketplaces into collecting VAT in place of sellers.
This article provides an quick overview of these major reforms, and how it will affect sellers and marketplaces’ obligations. This is based on three major reforms planned for July 2021.
1. A single EU VAT return for ecommerce distance selling
When the reforms come into effect, the existing ‘Distance Selling Threshold’ simplifications will be withdrawn. This will be accompanied by the roll out of a single EU VAT return, One Stop Shop (‘OSS’).
Sellers shipping goods from their home country to customers across the EU may opt to use OSS to report all of their pan-EU sales. This replaces the requirement of being VAT registered in each country once the seller has passed the relevant country distance selling threshold. This is also an extension of the 2015 Mini One-Stop Shop (‘MOSS’), which successfully trialled a single EU return for B2C sales of digital, telecoms and broadcast services (streaming media, e-books, apps etc.).
Implications: After July 2021, some ecommerce sellers will be able to close their foreign VAT registrations. They can instead complete a quarterly OSS return for their home country’s tax authority. Non-EU sellers may use OSS, too. OSS will list: sales by EU country, VAT % used, and VAT due. This VAT must be paid to the home country’s tax office.
Note: Sellers holding stocks in warehouses in other EU states will still have to remain foreign VAT registered following the July 2021 reforms. This includes sellers using the Fulfilment by Amazon (FBA) program. There will be exceptions for sellers using marketplace facilitators (see Section 3).
In addition to distance selling, the B2C service and event organisers may use OSS.
2. Closing the import VAT exemption loophole – import ‘Green Channel’ - and introduction of the Import One-Stop Shop (IOSS)
From July 2021, the €22 VAT exemption on small parcels being imported into the EU for delivery to consumers will be withdrawn. This exemption has been heavily abused by many sellers mistakenly or deliberately under-declaring the import values of goods to avoid VAT. Instead, VAT must be charged at the point-of-sale for consignments not exceedng €150. This VAT is may be declared and paid via a new submission, the ‘Import One Stop Shop’ (IOSS). This will create a more efficient fast-track, or ‘Green Channel’, quick and easy customs clearance.
Implications: From July 2021, EU sellers will no longer be disadvantaged on price, as non-EU sellers will have to charge VAT on all imported goods. Non-EU sellers will have to register for IOSS in just one EU state to declare the VAT on any affected imports on shipments below €150. This is known as the ‘non-Union scheme’. However, non-EU sellers will require at least one regular VAT registration in one Union member state. There are instances where a facilitating marketplace (see marketplace deemed supplier rules), or delivery service may step in to report and pay the VAT. If any seller choses not to use the IOSS, the customer will have to pay the delivery or customs agent to access their goods.
However, sellers and marketplaces may opt instead to use the Special Arrangements and have postal agents and customs agenst instead collect the import VAT on consignments not exceeding €150.
3. Marketplaces become the deemed supplier and VAT collector
The July 2021 reforms will oblige marketplaces which facilitate cross-border sales to consumers via third parties to become the ‘deemed supplier’ in certain cases. This is also termed the full liability regime. This marketplace VAT liability does extend to product liability.
The EU has defined ‘facilitating’ as “electronic platforms assisting sellers and consumers to come together and strike a contract for the supply of goods on a cross-border basis”. The new deemed supplier regime will apply in two use cases when the marketplace is facilitating a B2C sale: imports not exceeding €150; and distance selling cross-border or domestic transactions of any value for non-EU sellers. There is scope for the marketplace to opt-out of this scheme, and the VAT obligations to be transferred to the delivery company of the seller.
Implications: After July 2021, marketplaces will become responsible for charging and collecting VAT on deemed supplier transactions. However, the marketplace does not take on product liability or regulatory obligations. For imports not exceeding €150, instead of import VAT, the marketplace will charge the customer VAT at the point-of-sale and declare it instead of the seller. Both EU and non-EU sellers will benefit from reduced VAT obligations, and may be able to deregister in some EU states.