New European VAT rules for e-commerce
With the implementation of the OSS scheme, or One-Stop Shop, in July 2021, e-commerce VAT rules changed drastically. The European Union has designed this e-commerce package with the aim of reducing the administrative obligations for distance sellers and to make their lives easier when it comes to reporting cross-border sales. So, what are the new e-commerce VAT rules? This article will outline what the e-commerce package entails.
New European VAT regulations for e-commerce
With the introduction of the e-commerce package, old e-commerce VAT rules no longer apply, and distance sellers no longer have the need to register and submit VAT returns in every Member State in which they have carried out a taxable transaction. The new e-commerce VAT rules wipe away this obligation, and instead, only a single VAT registration is required and only one VAT return is to be submitted quarterly for sales in all countries.
It is important to note that there are some exceptions to these regulations, which we will introduce in the next section.
Most important aspects of the new European VAT regulations for e-commerce
Old e-commerce VAT rules
Until OSS begins in July 2021, the old e-commerce VAT rules will still be applicable. That is, an e-commerce business has to register for VAT in the client’s country when sales in that given country exceed 35,000€ per year. This threshold was increased to 100,000€ in certain countries like Germany and The Netherlands.
For example, if a company established in Germany and sells products from Germany to French consumers for an annual value of 30,000€, it does not have to register in France, but if the value of those sales was 36,000€ it would need to register for French VAT. The same would apply to sales in any other EU country.
In this article we explain what a VAT number is and how can you get one.
If you import your products from a non-EU country so they are sold to European customers, you would need to choose whether the final customer would act as the importer or whether your business would import the product and then sell it to the final client. In both cases, you would need to agree with the carrier how VAT is to be managed at importation. If you are the importer, you will normally need to register for VAT in each country. The 22€ small consignment threshold no longer applies since 2021.
Additionally, anyone holding stock in a foreign EU country would need to register for VAT in the country where they hold stock. Some e-commerce sellers move their products closer to their potential clients so they can make a speedy supply. This is the case for Amazon FBA sellers. In these schemes where the goods are stored in a foreign EU country, a VAT number in that country is always required.
Let’s take a look at how the new package changed the previous e-commerce VAT rules.
The normal distance selling thresholds no longer apply under the OSS regime. Instead, a threshold of 10,000€ applies. When distance sales do not exceed this new threshold, VAT can be charged at your country’s VAT rate. However, when that threshold is crossed in another Member State, VAT must be charged at the rate of the country of destination.
Check out our overview on all European VAT rates.
The One-Stop Shop (OSS)
OSS allows e-commerce businesses to have one single VAT registration for their sales in all EU countries. In this sense, all sales in Europe are reported in a single VAT return and the VAT is paid in a single country. This is a positive change from the old e-commerce VAT rules, in which under certain circumstances the seller was obligated to be VAT registered in multiple countries and pay the VAT due to the local tax authorities.
There are three possible schemes for sellers to join depending on the type of supplies and the country of establishment: Union OSS, non-Union OSS, and Import OSS.
For certain scenarios, the new e-commerce VAT rules laid out by the OSS scheme do not apply. This is especially true for members of Amazon’s pan-European program, as holding stock in another country obligates the seller to be VAT registered in that country. This also applies for distance sellers who are not in the pan-European program but store their products in a warehouse in another Member State.
Additionally, special rules apply for marketplaces such as Amazon or eBay.
Which transactions are covered by the new e-commerce VAT rules?
When you sell products from your home country to customers in your home country, these sales are not covered by the OSS scheme and will be reported in your usual VAT return. If, however, these products come from another EU country, such sales would qualify as intra-Community distance sales and you would report them in the OSS return.
Other types of transactions that are normally covered under the new e-commerce VAT rules include:
- Distance sales of goods and services to non-taxable person in another EU country.
- Distance sales of goods imported from outside the EU in shipments below 150€.
Which are the companies included in this new regime?
Non-EU businesses, EU businesses, and marketplaces (also known as a deemed supplier) are eligible. It is important to note that depending on the activity to be carried out and where the business is established, one of the three OSS schemes mentioned above would apply (Union OSS, non-Union OSS, and Import OSS).
Benefits of the new VAT regulations in Europe for e-commerce
The new e-commerce VAT rules in Europe and the OSS regime provide many benefits for participants. They do not have to worry about VAT registering in multiple countries any longer for simply carrying out cross-border transactions. Things like having to register in different countries, keeping track of due dates, making sure the payments are sent correctly and litigating in different languages can cause a big headache for sellers. This new regime lessens the burden on sellers while also reducing their administration costs.
At Marosa we can help you
We understand that these new e-commerce VAT rules can be confusing, especially when trying to figure out how to correctly prepare VAT returns. The good news is that Marosa has an automated and cost-efficient software that will help you to submit all VAT returns automatically with an easy-to-use wizard that will guide you in each filing.
Get in touch
Still have any questions about what is input and output VAT? We would be happy to help clarify, as well as discuss how our solutions can make your VAT accounting easier.