The Great EU VAT Reform: Are you ready?
- Jun 17, 2021 | Avalara
EU VAT reform introducing the IOSS and OSS will offer businesses some significant business benefits. Here, we explore the actions you can take now to get ahead and to realise these advantages sooner rather than later. Find out more about how we can help today.
On July 1, 2021, member states of the European Union (EU) will roll out the most significant changes to VAT obligations of B2C ecommerce in 30 years – the introduction of the Union & Non-Union One-Stop Shop (OSS), the Import One-Stop Shop (IOSS) and Marketplace Deemed Supplier Obligations.
While the reforms are designed to simplify tax, as with any change, understanding what the reforms mean can feel overwhelming for business leaders.
At the 2021 Avalara Ecommerce Summit, Matt Harrison, one of Avalara’s VAT solutions specialists, spoke to Thomas Lemmon, senior journalist at Accountancy Age to help businesses understand what the changes mean and what you need to be thinking about to ensure you remain compliant.
Matt Harrison said: “These changes have been part of the EU roadmap for many years. The key reform means many ecommerce sellers will be able to report all their pan-EU sales on a single VAT return, instead of having multiple VAT registrations across the EU. These changes are a massive opportunity to support the growth of the SMB market”.
While there will undoubtedly be some initial complexity around understanding these changes, there are significant business benefits in the simplification of the EU VAT reform. These include:
- Growth: The ability to expand to new markets and trade with one of the biggest trading blocks in the world through OSS and IOSS.
- Cost reduction: Enjoy reduced compliance costs as there will be a need for less registrations. Also, with the IOSS, the ability to reclaim back VAT on Delivery Duty Paid (DDP) sales means you will not lose the VAT compared with previous DDP models.
- Customer experience: A simplified process of goods going through customs via the IOSS should speed up customer delivery time. And, with no extra costs should result in fewer returned goods.
- Cashflow: Paying VAT at the border before the goods reach the customer means you will not need to submit your tax remit until the following month, keeping more cash in your business.
Three things you need to be ready for:
- Set the correct tax calculations
What you need to know: Until now, you have probably been using a handful of different codes such as origin rates. From July 1, 2021, each of the 27 member states will have different classifications for products – meaning there will be over 80 rates you might need to be aware of.
Get ahead: Do your research. Understand the taxability of each of the products you’re selling and in each market. How will you calculate the different rates for each of your products?
Watch out for: Classifications. Keep in mind that not every product will have the same classification in each EU country. Although the EU is one trading block, it can potentially get complex if you are, or will be, selling to all markets. Under or overpaying tax can have serious consequences to the business.
- Ensure pricing accuracy of goods online
What you need to know: Standard VAT rates within the EU currently range from 17% to 27%. With a 10% margin in the different countries, it is quite a challenge for businesses who are trying to charge the correct rate within each of the countries. For IOSS there is an obligation to charge sales VAT at the point-of-sale and attaching the invoice to the order, so having a smooth process around this can affect delivery times.
Get ahead: Can the website be dynamic so you can set prices per region based on IP or delivery address? Or can you have different websites per region? Failing this you can come up with a pricing strategy based around the countries you predominately sell to so you can maximise margins and stay competitive within each market.
Watch out for: You may have been selling reduced rated products from your home country, but this does not mean it universally applies across all regions.
- Understand the new VAT reporting
What you need to know: While these changes are designed to simplify the system, the complexity is that it’s not uncommon to be selling through multiple channels. Understanding which transactions need to be reported in which return can be difficult. With each country publishing their own requirements, you will need to register and be ready within the market you trade.
Get ahead: Understand which transactions need to be reported and what type of registration you are required to have because the nature of your business activity may require you to need multiple registrations.
Watch out for: Double reporting or missing transactions which can result in the over or under reporting of VAT. This could result in extreme penalties being applied. Also, not every country has yet published or produced portals in which they want customers to register. Be aware of which countries these are as there is likely to be a backlog and you may not be able to register in time.
Matt Harrison concludes: “While the reform has been designed to simplify many aspects of VAT reporting, the biggest challenge will be to understand what this means in practice for the millions of ecommerce businesses who will be affected. Finding the right partner to support you navigate through these changes will help enormously. While there will be some initial complexity around understanding the rules, getting this right will result in a massive opportunity for SMB’s to grow their businesses.”
Find out more about how Avalara’s IOSS products and solutions can help your business. Act now to get ready for July 1st. Need some support? Talk to one of our experts today.
Need help with your UK VAT compliance?
Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade.