This post is co-authored with Munish Gupta, Founder and CEO of Supply Chain Advisory Group.
Pro Tip: Curious about international shipping costs? Read about The Difference Between Taxes, Duties, & Tariffs.
Effective July 1, 2021 the EU VAT rules are changing, affecting shipments going into the EU as well as shipments made between EU countries. These changes are happening in an effort to simplify VAT registrations and rules for sellers.
TL;DR: What This Means for Sellers
- Distance selling thresholds are eliminated.
- New threshold values: sellers established in the EU are subject to an EU-wide threshold of €10,000; non-EU sellers are subjected to a zero threshold.
- VAT registration and remittance is simplified via the One-Stop-Shop payment portal.
- Filing VAT returns is simplified: you need one return for the country you import into (and have the VAT number from) and one return for the rest of the EU countries. This eliminates the need for multiple EU VAT numbers except in cases where there are exceptions.
- OMPs (Online Marketplaces) are required to take on VAT calculations and collections.
What is VAT?
VAT stands for value-added tax. (This is known in some countries as a GST, or goods and services tax.) This type of tax is based on the standard percentage, defined by the government, of additional cost needed to be added to any imported product coming into the country.
New VAT Threshold Amounts Across the EU
The new VAT rules state that there will be an EU-wide threshold of €10,000, applicable to sellers established in the EU. There is also a €0 (zero) threshold for non-EU sellers.
As a non-EU seller, you are subject to the zero threshold.
Starting July 1, 2021, the distance selling threshold requirements would be eliminated, making the VAT filing requirements in the EU easier.
The distance selling threshold is a set of EU VAT rules that affect goods sold online to EU customers, direct-to-consumer only. The rules state that your VAT charges in one country cannot exceed a certain monetary threshold in another EU country. If VAT charges exceed that threshold within any one calendar year, you need a VAT registration in the secondary EU country as well.
For example, many US-based companies use the Netherlands as the primary country where they import, and then send their products to the customers in other EU countries. When you initially get the Netherlands VAT number and sell products to customers all over the EU, you must charge the standard 21% Netherlands VAT to everyone. Once your sales from the Netherlands to another EU country (France, for example) exceed €35000, you must register for VAT in France and then charge the French VAT rate of 20% to French customers. This is how customers end up having multiple VAT numbers after years of doing business in the EU.
New OSS Payment Portal
To reduce the administrative burden and costs for companies to potentially VAT register in all 27 EU countries, the EU will introduce an option to report all cross-border B2C distance sales in the form of a One-Stop-Shop (OSS) VAT return.
The OSS is an electronic portal that allows you to declare and remit VAT on most EU-wide B2C sales. The OSS will not take away the requirement for businesses to charge VAT in each EU member state, however, it will allow you to register in only one EU member state to report and pay the VAT on these transactions on a monthly or quarterly basis.
The OSS may be used for B2C distance sales and the provision of specific services. Domestic sales and transfers of inventory between different member states still require local VAT registrations.
How Does OSS This Affect Your VAT Filings?
Currently sellers must file VAT returns in the primary EU country where they import into, for all EU sales. Once OSS takes over, filing will only require one return in that country. For the other 26 European countries, you will have only one VAT return as well.
To use the same example, if you are a US seller you might want to use the Netherlands (NL) as your place of import, warehousing and shipping. You will have to file two returns total, one for Netherlands and one for the rest of Europe. The filing frequency for the European return will be the same as that of the Netherlands return, quarterly. You can get set up with VAT registration in any EU country. However, the benefit of the Netherlands is filing quarterly returns—other countries such as Germany, France, require filing monthly returns. Filing a monthly return means additional time, resources, potential cost and the compliance regulations.
Registrations for the OSS opened starting in April 2021. If you’re a seller established in a non-EU country, you can register in an EU member state from where you dispatch your goods. You may require a fiscal representative to represent you in the country of registration. For the Netherlands, you do not need a fiscal representative if you do not defer the import VAT.
Instead you can register for OSS from the Netherlands and there will be a one time registration fee. Once registered, you will have a filing fee for both the Netherlands and EU VAT returns.
Extended responsibilities for Online Marketplaces (OMP)
In line with the introduction of the OSS, all OMP’s such as Amazon and eBay will become liable for collecting VAT on certain sales of goods facilitated through their website. This will include all domestic and distance sales made by non-EU sellers, and will force the OMP to charge and account for the VAT of those transactions. Non-EU sellers will have a requirement to report the sale to the OMP in a domestic VAT return in the country where the goods were sold.
These new rules will require online marketplace businesses to change the way that they trade and account for VAT in the EU.
What This Means for Sellers
VAT rates are different for different EU countries, that won’t change—but managing EU VAT taxes will be more straightforward for sellers who have customers in multiple EU countries.
The new EU rules will make VAT registration, filings, and compliance management simpler, but with big changes like this, sellers will need to work with experts to ensure they are in compliance. While the rules make some systems streamlined, some aspects of DTC sales across the EU will be more complex.
Let’s use the same example of a US-based seller who uses the Netherlands (NL) as their primary country of import from the US, and to send products to other EU countries. Under previous rules, they would use the NL VAT number and charge the NL VAT rate to their EU customers. The NL VAT rate (21%) is higher than the German VAT rate (19%). Previous to the new rules, if they sent products from the Netherlands warehouse to a customer in Germany, they would charge them 21% Netherlands rate because the fulfillment location is the Netherlands. They would charge the 21% NL VAT rates to shipments to customers in all EU countries. Now, under the new rules, if they sell to customers in Germany, they will charge German VAT to German customers at 19%.
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