From the 1st July 2021, the EU implemented new VAT (Value Added Tax) rules for B2C sellers from ‘third countries’ (those not in the EU’s single market), which will impact all online sellers selling their products or services into the bloc.
The new rules have been created to ensure that VAT is charged regardless of the supplier’s location, something that was not always the case previously.
If you’ve run into issues with unexpected VAT charges or customs holdups since July or just want to plan for future online trading with the EU, we look at what you can do below:
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How have the EU VAT Rules Changed on 1st July 2021?
The previous EU rules meant there was a €22 EUR low-consignment relief on items sold into the EU, so small items could go through customs without VAT charges for the seller. For larger orders, many sellers didn’t need to worry about VAT because of distance selling threshold rules where VAT was only required once a certain volume of sales was reached in a particular country.
These previous rules meant that many cheap products from China were VAT exempt, which the EU perceive as an unfair level of competition.
From 1st of July, this has been changed and all items sent from ‘third countries’ will be subject to European VAT.
For unprepared business this could mean products held at the border with VAT charges levied on the end consumer without their knowing, potentially leading to disgruntled customers and reputational damage to the business.
Some Businesses Could Benefit Though
On the flip side of this, for larger ecommerce businesses selling to the EU, the new rules may actually simplify their VAT returns. Under the previous system, the EU’s distance selling threshold rules meant paying VAT and associated costs in each individual country where you go over the max limit. This meant setting up VAT payments in different countries and was a time-consuming and costly process.
The new EU-wide approach means businesses only have to navigate one set of VAT requirements and payments, helping to reduce costs and admin requirements.
How Can Businesses Avoid VAT Disruption when Selling into the EU?
For microbusinesses there is expected to be some disruption and extra costs, due to the need to register for VAT. The initial VAT changes that came into force in January 2021 caused a fair amount of confusion, with some businesses choosing to limit or cease selling into the EU.
To ensure these issues don’t arise, businesses can sign up the EU’s new One Stop Shop (OSS) scheme for VAT before the deadline.
The new OSS scheme is for online sellers who have a prior VAT registration in a European country and want to report sales from the EU country for EU-wide sales.
Businesses without a registered office in the EU will need to apply for the Import One Stop Shop (IOSS) scheme, which allows for sellers to declare and pay the relevant VAT to EU tax authorities without any unexpected charges for the customer.
For online sellers on ecommerce platforms, those that will need to register for the scheme will be those selling on independent ecommerce platforms such as Shopify, Magento and Woocommerce that hold stock in an EU country and want to distribute within the EU.
Note, that online marketplace sellers such as traders on eBay and Amazon are not required to register for this scheme as the merchant is effectively acting as the seller on your behalf and collecting VAT at the point of sale. Despite this, you will still need to register for VAT in the country where you store and distribute your goods, even though no payments will be expected.
Avoid VAT Disruption for your Online Business
These changes don’t have to negatively affect your business, and could actually help larger online businesses simplify their VAT returns for selling into the EU.
Think carefully about how your business fits in with the new guidelines, remove yourself from any out-of-date VAT requirements and apply for either the OSS or IOSS schemes.
Despite these new schemes it can be tricky to navigate all the new rules, so speak to an ecommerce accountant for more guidance.
Ben Sztejka ACA is the founder of Your Ecommerce Accountant – a specialist accountants for online businesses. As a former online seller on eBay and Amazon, when Ben trained as a Chartered Accountant, he found that traditional accountants did not understand eCommerce clients. In 2018 Ben founded Your Ecommerce Accountant with the aim of providing a knowledgeable service for online entrepreneurs.
