One of the reforms being introduced in the new VAT e-commerce package is an amendment to Regulation 2015/2446 on EU customs rules...
The amendment will see the existing VAT exemption for goods up to €22 abolished from 1st July 2021.
The current ‘low value consignment stock relief’ exemption enables online sellers of goods to EU consumers, to import VAT-free where the consignment goods are valued at €22 or less.
Why is the exemption being abolished?
Originally, the exemption was established with the intention to relieve customs from having to check high package volumes for small amounts of potential tax revenues.
However, over the years, sellers based in the EU have faced a substantial price disadvantage, due to the fact they have been required to charge VAT on goods dispatched from within the EU.
On top of this, the exemption has reportedly been widely abused and resulted in extensive fraud attempts that have seen sellers under-declare the import value of their goods.
Charging VAT at the point-of-sale
From 1st July, new requirements will take the place of the existing VAT exemption threshold. The amended rules will force all sellers to charge VAT at the point-of-sale for consignments of €150 or below. This is planned to create an efficient ‘Green Channel’ with simple and straightforward customs clearance.
How will it work in practice?
Once import VAT is switched to point-of-sale, sellers will charge VAT at the rate of their customer’s EU country of residence at the point-of-sale on the website. No VAT will be due at the point of import, but rather sellers will use their customers’ delivery addresses to determine the country’s VAT rate.
Import One-Stop-Shop (IOSS) reporting
A new electronic portal called the Import One-Stop-Shop (IOSS) is being introduced to help sellers report VAT charged at the point-of-sale. The IOSS has been created to better facilitate both the declaring and paying of VAT for goods sold from distance by sellers in both EU and non-EU countries.
As mentioned, such VAT payment is only applicable to purchases made by buyers within the EU for goods valued at €150 or less.
All sellers and marketplaces are required to register for IOSS in an EU member state.
For businesses not based in the EU, an EU-established intermediary will usually be needed to be appointed to fulfil VAT obligations under IOSS.
After registering, sellers will be issued a Unique Identification Number which must be listed on all packages sent to the EU. This ID will indicate to customs that VAT is getting declared properly.
Special Arrangements scheme
It’s important to note that IOSS is not compulsory for consignments under €150. A ‘Special Arrangements’ scheme will allow sellers and marketplaces to opt out, passing the import VAT collection role to postal services.
Using this option, the import VAT gets collected from the customer by the customs declarant who then settles the VAT collected with the tax authorities using a monthly payment.
How will this impact UK sellers?
On 1st January 2021, the UK exited the EU VAT regime, Customs Union and Single Market and withdrew its EU £15 low value consignment stock relief threshold.
Following this, the UK government introduced a new £135 VAT at point-of-sale regime. So, IOSS will only apply to UK sellers for sales under £135 / €150.
When it comes to sales to EU customers, UK residents are no longer considered part of the EU and so will use the IOSS as non-Union sellers. UK businesses will be eligible to use the IOSS as long as they have registered for VAT in an EU member state.
As a non-Union seller, UK businesses are required to register and pay VAT charged at 20% to UK customers. They are not eligible for the Special Arrangements scheme mentioned above and is business as usual.
For B2C sales, UK sellers must charge and account for VAT at the point of sale by:
Finding out the correct rate of VAT to charge
Ensuing they are already registered for VAT
Keeping records of goods sold with accurate information
UK businesses will also need to apply for an EORI number for goods being exported outside of the UK.
Get ready for IOSS
The IOSS scheme will simplify the current requirements and help businesses ensure VAT compliance. After registering in one member state, IOSS will handle VAT for any other member states to which a business exports. This means that VAT will be collected and charged at the point of sale online and then paid via the IOSS.
In some member states, a fiscal VAT representative is required to represent on your behalf when dealing with the relevant tax authorities. If a representative is required, accounting services can help with arrangements and make the transition seamless.
If you’d like to find out more about how your business can prepare for IOSS, simply get in touch with VATworks today.