New EU VAT rules on online sales of goods

As from 2021, most current foreign VAT registrations of online sellers may be merged into a single one stop-shop VAT number where all sales in Europe are reported.

What are the current rules?

Under the current rules, selling good over the internet to a non-VAT registered consumer in another EU country is subject to the distance sales regime. Under this scheme, a VAT registration in the country of the customer is not required until the sales in that country exceed €35,000 (Germany, Luxembourg, Netherlands and UK have a €100,000 threshold).

Where such threshold is exceeded, the company must file VAT returns, issue invoices and comply with all local VAT regulations.

You can find more information in our article ´VAT on drop-shipping. e-commerce vat and distance sales EU VAT obligations´

What are the changes?

The Commission has agreed to apply a one stop shop mechanism for all online cross-border sales of goods within the EU. This mechanism will only apply on goods shipped within the EU to non-VAT registered consumers.

Following the implementation, these companies will register under the distance sales scheme in its country of residence. Sales to individuals in other EU countries must charge VAT at the local rate of the customer´s country, however, the company will not have to register for VAT in that country. Instead, a single VAT return will be submitted from the country of residence including all sales made in each country (splitting the sales per jurisdiction). One single VAT payment will be made to the tax authority of the country of residence, who will then forward each amount to the relevant tax authorities of the countries where the sales were made.

For example, a UK based business selling goods over the internet to individuals in France and Spain currently needs to register for French VAT and German VAT if sales in each country are above €35,000 per year. As from 2021, these registrations will not be required. Instead, the UK business will report sales to Spanish customers under the 21% Spanish VAT rate in the UK VAT return, likewise, French sales will be reported in this return using the 20% French rate. The full payment of VAT will be made to HMRC, who will then forward the relevant amounts to the French and Spanish tax authorities according to the data reported in the VAT return.

This system is an extension of the MOSS regime, which is in place for online suppliers of electronic services since 1 January 2015.

What is the timeline?

Following the announcements made this month by the European Commission, the new distance sales regime will be introduced as from 1 January 2021.

Anything else?

Despite the simplification intended with these changes, a VAT registration will also be required in the country of origin of the goods. This may require multiple VAT numbers where businesses make use of Amazon FBA with more than one warehouse.

There are a number of local rules that will remain applicable such as the need to issue an invoice according the to requirements of the customer´s country or the need to apply the correct VAT rate as per the domestic VAT law.