From 1 July 2021 new VAT compliance rules will come into force in the European Union in relation to business to consumer (B2C) e-commerce supplies of goods and services. The rules will affect both sellers and related marketplaces such as Amazon, Ebay etc. These new rules form part of a wide package of reforms aimed at simplifying VAT compliance for e-commerce businesses trading throughout the EU at the same time as ensuring that the VAT due is correctly accounted for in the country of consumption. The measures also aim to significantly reduce e-commerce VAT fraud.
The planned changes will see the introduction of the new One Stop Shop (OSS) EU VAT return, which will enable e-commerce sellers to account for VAT on sales of goods, as well as certain services, to consumers across Europe via a single VAT return. This follows on from the Mini One Stop Shop (MOSS), which was introduced in 2015 to capture B2C VAT in respect of digital, telecom and broadcast services provided in multiple EU states.
At the same time that the new OSS is launched, a new Import One Stop Shop (IOSS) for non-EU based businesses will also go live; low value consignment relief will be abolished and marketplaces will become deemed suppliers for VAT purposes.
As part of these sweeping changes, the distance selling threshold rules in the EU has been overhauled resulting in individual country thresholds no longer being relevant. Instead, there will be a single, EU wide threshold of €10,000 applicable to all cross border ‘distance’ sales. Once this threshold is breached, VAT can be accounted for via the OSS at the rate applicable in the customer’s member state. Alternatively, as use of the OSS is voluntary, sellers will be required to register for VAT in each member state where supplies are made.
These are significant reforms, which for many EU based e-commerce businesses might result in all sales being reported via a single VAT return rather than through multiple VAT registrations across the EU. However, this new system is not as simple as it may first appear, and for many businesses there may remain a requirement to maintain VAT registrations in multiple member states. For example, many e-commerce sellers of goods will utilise online market places who might opt to hold stocks of their goods in more than one EU state, to facilitate faster delivery. In these circumstances, under the place of supply rules, sellers will need to maintain VAT registrations in all countries where goods are located at the time of supply.
At the same time, under these new rules, marketplaces, platforms and other facilitators of online sales will become ‘deemed’ suppliers and will be treated as having both received and made supply of the goods that they sell on behalf of the business owners. They are also permitted to utilise the OSS for cross border sales.
UK e-commerce businesses that supply goods to EU consumers can opt to register for the IOSS. The IOSS can be used where goods valued at less than €150 are sent direct to EU consumers from countries outside the EU. Items valued at less than €150 (less transport and tax) are not subject to duty charges, which is in line with the low value import rules implemented in the UK from 1 January 2021. However, the IOSS cannot be used for sales of excise goods. Non-EU established businesses utilising the IOSS will need to appoint a representative to account for VAT on their behalf, with IOSS returns being due for submission on a monthly basis. However, it should be noted that there is no facility to recover input tax via the IOSS return and where VAT costs are incurred overseas in relation to sales made in the EU, this VAT will have to be recovered by alternative means, such as a Thirteenth Directive reclaim, EU VAT returns or the EU refund scheme.
UK e-commerce businesses that wish to take advantage of the new rules should start preparing now, as some countries require applications for use of the OSS to be made 4 weeks ahead of 1 July, though many EU authorities are still putting in place the local legislation to implement the changes. With this in mind, whilst the aim is to make compliance less arduous for e-commerce business, there is a good chance, in the early days at least, businesses may experience some teething problems.
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