EU introduces new e-commerce VAT system
The new e-commerce VAT system introduced by the EU on 1 July impacts the treatment and compliance associated with supplies of goods to and within the EU, in particular those sold to EU consumers (B2C). Intended to ease the administrative burden and collection of VAT in the EU, the new rules affect both EU and UK suppliers.
An outline of the e-commerce VAT changes:
- A One-Stop Shop (OSS) has been introduced to allow VAT to be collected under a single registration, for B2C, intra-EU, distance sales of goods – those that are located in one EU member state and are then sold to consumers in other EU countries – as well as collecting VAT on certain services supplied by non-EU established businesses to consumers. A non-Union OSS scheme exists for similar sales of goods and services but where the seller is not established in the EU.
- An Import One-Stop Shop (IOSS) has been introduced for the collection of EU VAT on goods imported into the EU (and where the consignment is up to €150). The existing Low Value Consignment Relief (LVCR), exempting goods up to €22 from import VAT, has now been removed.
- Existing, member state specific, distance selling thresholds for goods sold B2C within the EU have been removed and replaced with a new EU-wide threshold of €10,000, however the threshold does not apply to businesses established outside the EU.
- Special rules have been introduced in respect of certain B2C sales of goods facilitated via an Electronic Interface (EI) such as an online marketplace whereby, for VAT purposes, the EI is required to collect the VAT due on sale to customers; the EI is deemed to have both received the supply from the supplier and to have made the supply of goods to the consumer.
One-Stop Shop (OSS)
The EU has removed the existing distance selling registration thresholds for B2C sales of goods from one member state to others. The thresholds varied according to the EU country of destination and, if exceeded, required the EU seller to register for VAT where the goods were sold. From 1 July 2021, there is a uniform EU-wide threshold of €10,000 for EU established businesses. For such businesses the distance selling of goods between member states below the new threshold will remain subject to VAT in the EU member state where the seller is established. For sales above the new threshold VAT registrations in other member states will be required, unless OSS is utilised. The new threshold does not apply to businesses established outside of the EU and as such any distance selling of goods moving between member states by a UK (or any non-EU established business) will require an EU VAT registration in the EU member state where the goods are delivered, again unless OSS is utilised.
The use of OSS is optional but it does avoid the need for multiple VAT registrations wherever intra-EU sales of goods are made on a B2C basis. It allows for one registration and single returns to be filed, covering all EU distance sales between member states. It should be noted that a non-EU established business may require a representative in the EU in order to utilise OSS.
For businesses that are not established in the EU, OSS (referred to as non-Union OSS) could also be used to declare any EU VAT due on services to consumers including services such as:
- Admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events such as fairs and exhibitions;
- Transport services;
- Services of valuation and work on movable tangible property;
- Ancillary transport activities such as loading, unloading, handling or similar activities;
- Services connected to land and buildings;
- Hiring a means of transport; and
- Supply of restaurant and catering services for consumption on board ships, aircraft or trains etc.
Import One-Stop Shop (IOSS)
The VAT exemption available under Low Value Consignment Relief has now been removed, meaning that all imports of goods into the EU from 1 July 2021 are subject to VAT when they are imported. To simplify the declaration and payment of any VAT due for goods sold from a distance (i.e. outside the EU) to consumers in the EU (who would likely be responsible for paying any VAT due on the EU import), the EU has introduced a new scheme known as IOSS.
The use of IOSS, which is optional, allows the seller to pay the VAT instead of the consumer. Only a single IOSS registration and return filing process is necessary to cover imports across the whole of the EU. IOSS does not cover distance sales from outside the EU to EU consumers where consignments exceed €150, nor does it cover goods subject to excise duties and goods sold from stock located within the EU. In the absence of an IOSS registration the carrier would need to collect the VAT due from the customer in order for the goods to be released.
Electronic Interfaces (EI)
Changes have also been introduced for the online sale of goods to EU customers which are facilitated by EI’s, such as online marketplaces. Where an EI has facilitated the sale between a supplier and a customer, it will be a ‘deemed supplier’ (i.e. considered to have both received the supply from the supplier and to have made the supply of goods to the consumer). This is where it facilitates:
- Distance sales of goods imported into the EU not exceeding €150; and/ or
- Supplies of goods to EU customers where the underlying supplier is not established in the EU irrespective of value (both domestic supplies and distance sales within the EU are covered).
Where the underlying supplier is not EU established and where there is a domestic or distance sale of goods (within the EU) to an EU consumer, the EI is treated as the seller and is liable to pay the EU VAT, which it can do via OSS where the goods are located in the EU.
Where there is a distance sale of goods to an EU consumer not exceeding €150 (excluding excise goods), which at the time of sale is dispatched from outside of the EU, an EI can declare the VAT via IOSS.
Effect on UK Businesses
In terms of what the changes could mean for UK businesses:
- Goods which are sold from outside the EU to consumers in the EU will be subject to VAT in the member state of import. A VAT amount collected from a customer on import may come as a surprise to them – the use of IOSS, where applicable, can help to avoid this issue.
- Goods which are sold from within the EU (including Northern Ireland) to consumers in other member states will be subject to VAT in the member state the goods are delivered to, where:
- In respect of a business established in Northern Ireland, its sales are above the €10,000 threshold.
- In respect of a business established in Great Britain, it has any distance sales it makes between EU member states.
OSS can be utilised to avoid multiple VAT registrations in the member states where VAT may be due on such sales.
- There is an important distinction between consignments up to €150 and those in excess of this value. There are administrative considerations for collecting VAT within this threshold and more challenging obstacles to overcome for clearing goods through customs where imports exceed €150.
Businesses should consider how the changes may affect them, including whether the new schemes can be used to avoid customers incurring any unexpected VAT costs. Where the new schemes are utilised, costings and websites would need to be reviewed for EU VAT that would become due at the point of sale.
The Gov.uk website includes a number of examples of these new rules in practice.
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