Next month, reforms to current VAT obligations will come into play for business-to-consumer (B2C) e-commerce sellers and marketplaces...
From 1st July 2021, three major changes will become effective:
Implementing the EU VAT One-Stop-Shop
Termination of low-value import VAT exemption and introduction of the new IOSS return
Marketplaces being made the deemed supplier for VAT
The new VAT e-commerce package has been put in place with the aim of facilitating cross-border trade, ensuring fair competition for all EU businesses and combatting VAT fraud.
As part of this package, the European Commission is building on the VAT Mini One-Stop-Shop (MOSS) which was successfully implemented 1st January 2015, and introducing a VAT One-Stop-Shop (OSS).
Background to the VAT MOSS Scheme
The Mini One-Stop-Shop (MOSS) was launched as an optional scheme allowing businesses to account for VAT due in multiple EU countries, in one single country. Those that supplied cross-border telecommunication, television, radio broadcasting or digital services to non-taxable persons were eligible for MOSS.
Instead of registering with tax authorities in every EU country where transactions are taking place, a business is entitled to register for VAT, file returns and make payments in one country. Under MOSS, two schemes exist:
The union scheme (for businesses established in the EU or with one branch in an EU country)
The non-union scheme (for businesses not established and without branches in the EU)
The choice of where a business registers for VAT MOSS depends largely on where they are established in the EU.
Introducing One-Stop-Shop (OSS)
The MOSS scheme becomes the non-union MOSS scheme and from 1st July, the OSS scheme will include the supplies of all types of business-to-consumer services, online sale of goods and some domestic supplies facilitated by digital marketplaces.
EU Distance Selling Thresholds
Under the current regime, the destination principle means that sellers are required to charge the VAT rate of their customer’s country of residence, the ‘Place of Supply’. When it comes to EU cross-border sales, this means that sellers are required to VAT register in each country where they sell goods.
To reduce large VAT burdens for smaller sellers, distance selling threshold rules apply for sales from sellers’ sending inventory directly from the UK. These thresholds are individually set by each EU member state but range from €35,000 to €100,000 per annum.
As the threshold simplification gets withdrawn, the EU will be replacing it with a single, pan-EU exemption threshold set at €100,000.
What does the new threshold mean for my business?
If you are below the registration threshold, you can carry on applying domestic rules for VAT (including the SME exemption scheme) on cross-border sales. Please note, certain marketplaces may insist that you register for VAT even if you are below the registration threshold.
If you are above the threshold, you are liable for VAT in the member state where your buyers are located. You can register in a special electronic system (One-Stop-Shop) where you declare and pay VAT.
One-Stop-Shop (OSS) EU VAT Return
At the same time that the distance selling thresholds are being withdrawn, the EU is also extending the VAT One-Stop-Shop (OSS) to e-commerce cross-border distance selling of goods.
This means that businesses will no longer be required to VAT register in every country where goods are being sold to EU consumers.
The new OSS filing will be completed in addition to usual domestic VAT returns and will need to be filed quarterly. Sellers should continue to declare any sales made to customers in their own country of residence through their domestic VAT return.
In order to file OSS successfully, customer delivery addresses should be used to correctly identify the country of residence and determine the correct VAT rate.
Do exemptions apply for micro-businesses?
Micro-businesses will be exempt from the new OSS rules. Any business selling under €10,000 per annum cross-border on B2C goods and services will not be required to complete a return.
In order to be eligible for this exemption, you will need to register your business through your member state’s online OSS portal. It is important to note that this relief is not available to UK and other non-EU businesses.
The impact of Brexit on UK sellers
Since leaving the EU VAT regime on 31st December 2020, UK sellers are now categorised as non-EU and are required to register in an EU state to file a non-Union OSS return.
Considerations for UK businesses
Under the One-Stop-Shop, UK sellers may need to appoint an intermediary or VAT fiscal representative in the EU countries where they are registered. This representative will report the sales on behalf of the UK business and account for any VAT owed.
It’s important that all systems being used by sellers are updated to show the VAT status of customers, countries of import, dispatch or arrival and capture all applicable VAT rates applicable.
If you trade via an online marketplace like Amazon, you need to review your contracts with these organisations to ensure VAT accounting responsibilities are clearly defined.
Businesses using Amazon as a marketplace
From 1st July 2021, Amazon will charge customers the relevant VAT rate from the point of sale for transactions:
From stock held in an EU country
Sold by UK and other non-EU based businesses.
UK and other non-EU businesses instead have to record the transaction as a zero-rated supply to Amazon and report on their own VAT return.
Holding stock within an EU country still triggers the need for VAT registration. This means that when selling pan-EU, sellers are still required to register for VAT in each of the countries where fulfillment warehouses are located.
For Amazon businesses selling cross-border, navigating EU VAT rule changes can take up a lot of time and stress. Whilst the OSS aims to simplify VAT compliance for online businesses, the reforms will bring complexities and difficulties for many.
VATworks’ accountancy services can be used to help with the transition, by looking after your business holistically, making sure you maximise efficiencies and get all sides of the VAT and tax right. At VATworks we use our technology and expertise to offload the stressful elements of selling and help Amazon businesses fulfil their EU and UK VAT requirements.
When it comes to the new VAT e-commerce package, we’re way ahead of the game. If you have any questions about the OSS EU VAT return, get in touch with our team today.