The future of eCommerce is now - with an increasing number of merchants switching to the online battlefield to sell their goods. This has been considered a powerful move among businesses during the pandemic and the post-pandemic era as in reaching out to new markets regardless of geographic boundaries.
eCommerce is booming like never before - the European Commission thereby introduces a new VAT action plan to simplify the administrative obligations for eCommerce and ensure fair competition between European and non-European traders.
It is undisputed that this move of modernizing cross-border eCommerce will hugely influence how online merchants sell, export and trade in the EU.
The new rules, set by the European Commission, will come into effect from July 1 onwards, transforming cross-border eCommerce drastically. Hence, we’re here to get you covered with everything you need to know about the new package!
Targeting international trades, the new EU VAT rules address distance sellers - defined as suppliers of goods who sell to individuals and arrange cross-border transportation of goods.
Obviously, there is a lot to cover regarding the new regulations. Here are the major things you must be familiar with:
1. The Abolishment of Distance Selling Thresholds & The New Intra-EU Threshold for Low-value Sales
Currently, distance sellers are required to register for VAT if they reach either a €35,000 or €100,000 threshold depending on the country of destination in the EU.
Under the new regulations, the existing thresholds will be abolished. Aimed to speed up delivery and VAT obligations, the new threshold for distance sales will be united EU-wide at €10,000.
Concerning low-value sales, all distance sales below €10,000 will remain subject to charge a local VAT rate of the shipment destination (where the customer locates) upon sale.
2. The New €150 VAT Threshold for Imports
Currently, commercial goods with values up to €10 or €22 are exempt from VAT, and the threshold for Customs duties is at €150.
As from July 1, the VAT threshold will be changed to €150 with the threshold for Customs duties remained unchanged. In other words, all imported goods* with an intrinsic value not exceeding €150 will be exempt from VAT in the EU and are subject to the use of the IOSS scheme (see the section 'The Introduction of Import One Stop Shop').
*Exception: Alcoholic products, perfumes, toilet waters, tobacco & tobacco products
3. The Introduction of One Stop Shop (OSS)
The old VAT rules will no longer be applicable upon the launch of the new package. From July 1, distance sellers are not required to submit an individual tax registration for each member state of the EU they ship to.
With OSS filing, merchants only have to submit one VAT registration that works for multiple EU countries, file a VAT return on an online portal, and pay on a quarterly basis.
4. The Introduction of Import One Stop Shop (IOSS)
As an optional scheme, IOSS is a new portal for VAT declaration on goods imported from countries outside the EU. With IOSS, sellers can file a single monthly VAT return for all exports to the EU, and pay the VAT (payable on the sales to the customers) in one member state.
5. The Use of ‘Electronic Interface’
A major change of note for eCommerce businesses: Upon the launch of the new VAT package, electronic interfaces (including but are not limited to eCommerce sites, marketplaces and portals) will be deemed to facilitate distance sales of goods, hence involving taxable transactions.
To whom do the new regulations apply to?
- EU businesses
- Non-EU businesses
Regarding tax registration, there are 3 schemes available - depending on the type of goods the merchant sells and the country where the business establishes: OSS (Union), OSS (Non-Union) and IOSS.
OSS (Union) applies to:
- All types of services provided to non-taxable customers (B2C) by a provider established in the EU
- Intra-community distance sales of goods (supplier established or not in the EU)
OSS (Non-Union) applies to:
- All types of services provided to non-taxable customers (B2C) by a provider not established in the EU
IOSS applies to:
- Distance sales of imported goods (with values that do not exceed €150 - not applicable to excise goods)
The new VAT rules for cross-border eCommerce doesn’t concern online merchants only - but everyone in the eCommerce ecosystem.
Visit the official website of the EU for more information: https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en