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Non-EU e-retail faces 40% EU VAT & customs hikes


Non-EU e-retail faces 40% EU VAT & customs hikes

The European Union has announced this week that it will scrap the VAT and customs exemptions for small packages delivered by non-EU e-commerce businesses.  The change is scheduled for 2021.

The change, aimed at raising €5bn in tax, could add up to 40% in taxes to deliveries, and push EU consumers to shop with local sellers.  It will also oblige non-EU sellers to track and comply with complex VAT and customs charges across 28 countries to correctly estimate landed cost.

EU VAT & Customs exemption for non-EU sellers

Non-EU e-commerce merchants enjoy an EU tax exemption on parcels smaller than around $25 each.  Without this threshold, sellers would have to pay EU import VAT (average 22%) and customs duties (4% to 10%) on goods shipped to EU consumers.  They can settle this bill, or leave for the consumer to pay to the fulfillment company – who in turn could charge a further 10% for the tax administration.  This second option is unpopular as EU consumers generally are not expecting it, and so will not repeat shop with the seller.

EU levels playing field and tackles VAT fraud

EU-based e-commerce companies have long campaigned against this threshold since it gives non-EU sellers a substantial tax advantage.  After many years of campaigning, the EU has confirmed that the threshold will be scrapped for US businesses in 2021.

Aside from leveling the playing field for EU online merchants, the measure will also help address abuse of the threshold by fraudsters who break bulk deliveries up to qualify for the exemption.

Millions of deliveries face complex landed cost calculations

The change will hit around 150 million packages delivered to the EU.  Sellers will be required to calculate VAT and customs duties. This includes tracking different VAT rates on products, and correctly picking hundreds of tariff codes for new customs declarations.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.