(P) Importers must charge their EU customers VAT and transmit it to all EU-27 tax authorities - no matter how small the parcel or how invaluable.
Most countries place a consumption tax on the product you sell with a profit, so when you add value to the product. This Value Added Tax follows the supply chain, from production to the final point of sale.
Countries like the U.S. prefer to call it a goods and services tax (GST). The average buyer sees it as sales tax, as we see this levied on every product we buy, either included in the final price (but listed separately on the receipt/invoice) or charges upon check out (like in the U.S.)
The rate varies from country to country and even across the EU, there is no harmonized rate. For a list of current rates in the European Union, please see here: https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services/vat-rates_en
Apart from the actual rate, VAT rates can also differ depending on the type of good and service. For example, in the UK, the standard rate is 20%, charged on most goods and services. There is a reduced rate of 5% for some goods and services, e.g. children’s car seats and home energy. Finally, a zero rate is placed on most foods.
Global E-commerce boom
The European Union (EU) will introduce new VAT rules for e-commerce in July 2021. E-commerce is booming, even more so during the COVID-19 pandemic. The mass move to online buying has changed freight and logistic pattern. Rather than large containers, millions of small parcels with low values criss-cross the globe 365/24. Already back in 2017, these were worth more than 1/2 a trillion Euros. Almost 20% of that, around 100 billion Euros came from global sales.
VAT change for every parcel
Currently, the EU is missing out on collecting VAT from all those millions of low-value parcel imports into the EU thanks to an exemption, Low-value means goods under €22.
Today, EU consumers are happy because they do not get a VAT inflated bill. EU and non-EU sellers selling goods (online or not) can sell on to their customers without charging them import VAT.
This ends 1 July 2021 and all imports will be subject to EU VAT. Import VAT is then applicable and may need to be paid along with customs duty if the worth of the goods is over. Practically, this means that sellers (and/or marketplace operators like Amazon) will be required to account for VAT on their sales to customers.
But wait - I pay the import VAT at the point of import, not sale!
Import VAT is the same as VAT, except it is paid on goods and services purchased from another country outside the European Union (EU). In the case of goods imported into the EU, import VAT is usually applicable at the point of import and may need to be paid along with customs duty. But under new rules, no import VAT is no longer due at the point of import from 1 July 2021. EU and non-EU sellers have to charge VAT at the point of sale (so before the import of the goods for consignments of €150 or below from 1 July 2021.
Red Tape Alert! Do I have to collect the VAT?
Businesses are fearing a massive amount of extra red tape in having to collect and account for additional VAT. They have to work out what VAT rate to charge based on their customer’s EU country of residence and adapt IT systems to take the VAT at the point-of-sale on the website (Sellers can use the delivery address of the customer to determine the country's VAT rate). So the red tape is a concern indeed, however, at least in some cases, they may offload the VAT collection to postal operators, express carriers, and customs agents.
Simplification: Import One-Stop-Shop - IOSS
Sellers can report the EU-wide VAT charged the EU's "Import One-Stop-Shop". It is specifically designed for all sales of imports below the €150 import value. UK traders and others, which had to navigate various VAT registrations across the EU Member States can only register for one IOSS - then valid across the EU. Their IOSS identification number must then go on the invoice and packages after 1 July 2021. In this way, customs know that import VAT is correctly declared.
IOSS will require quarterly filing to just one tax authority in one member state. They will then share the money due with all other Member States. Sellers can pay their VAT wherever they registered their IOSS accounts.
How to prepare for the changes
Businesses wishing to supply low-value goods and services to the EU need to consider how they will charge their customer the correct VAT rate after 1 July 2021, depending on the Member State and the type of product, as discussed above. If sold using online platforms, then IT changes may need to occur to allow for the correct VAT to be charged. Finally, businesses should consider registering for an IOSS account and get training on how to lodge the correct VAT returns to the authorities.
How we help
We help businesses to register for VAT in the EU and advise on how to prepare for the 1 July 2021 changes. We work with VAT representatives in the EU and can support any non-EU business with VAT requirements in the EU.
The new rules will come into action on 1 July 2021 but preparation can start right here, right now.
Explanatory Notes and Guidance documents
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