Latest updates concerning VAT & eCommerce in 2021
The pandemic created a shift from physical stores to online shopping. It also educated the majority of us about new online channels for buying essential products, such as personal care items. We even started doing our grocery shopping online. This is why the eCommerce sector experienced an unexpected boost in 2020 in terms of revenue growth and it is projected to reach $2.723.991m USD in 2021.
This shift to digital shopping benefited big online marketplaces such as Amazon. They recorded record quarterly profits within 2020.
To this regard, eCommerce poses a great opportunity for any seller who wants to invest in online sales and expand their business. It’s the same for current eCommerce businesses that want to expand their reach to new markets.
In doing so, these businesses must also invest time and effort in making sure that they comply with the current VAT rules and regulations set by the tax authorities in the territory of their choice. These rules are ever changing, trying to cope with the new digital era as well as with changes of the political and economic landscape.
VAT after Brexit
The biggest impact on VAT in 2021 so far has been Brexit. Even though the UK managed to reach an agreement with the EU, not much has changed in terms of what was expected in regards to VAT.
After December 31st, 2020, the Brexit transition period ended. The UK is now treated as a third-party country in the EU. This means the rules and regulation which used to govern the traffic of goods and services for distance sales will no longer apply to EU-UK trade.
eCommerce Sellers selling to the UK, have many factors to take into consideration as they need to pay attention to a range of new rules.
UK VAT treatment will depend on:
- the consignments’ value (above GBP 135 or less),
- the customer’s VAT status (if the customer is a UK VAT registered business or a consumer),
- the location of the goods at the moment of supply (if they are inside or outside GB)
- and the involvement of an online marketplace (OMP).
What do eCommerce businesses need to consider after Brexit?
A VAT number will be required in the country where the goods are stored or sold depending on the type of above mentioned factors.
In addition to VAT registrations, any business that involves import or export of physical goods into the EU or UK might require a new EORI number. This will ensure that it can continue its operations while avoiding costs and delays when clearing customs.
Fiscal Representation will be another issue to deal with after Brexit. Certain countries require non-EU businesses to appoint a VAT representative to be able to be VAT registered. In addition, only specific companies who comply with the exhaustive requirements, and are approved by local tax authorities, can be appointed as Fiscal Representatives. Global VAT Compliance’s Fiscal Representation services comply with all these requirements and can act as your Fiscal Representative in all your required countries.
EU VAT changes after July 1st 2021
The EU, in an effort to simplify the current tax laws and regulations, agreed to drastic changes in the VAT landscape during 2021. These changes are set to take effect on July 1st 2021 and they will have a huge impact on international traders and the eCommerce sector.
All distance sellers will be affected by these changes regardless of the country of establishment. So this is a good time to get updated and prepare your company in order to minimize the impact or take advantage of these changes.
In regards to these changes, several countries are requesting further postponement of the implementation of these rules (originally set to take effect on January 1st, 2021). That way they’ll be able to prepare and adapt to the new processes. But at this time the EU plans to go ahead with the set date.
These sweeping reforms to VAT obligations will affect B2C eCommerce sellers and marketplaces.
The major VAT changes after July 2021 are:
Removing the distance selling thresholds per country and setting a unified threshold of 10.000 euro
Launching the One-Stop-Shop EU VAT return for goods
Ending low-value import VAT exemption and introducing the new IOSS
Making marketplaces become a deemed supplier VAT
Why is the EU implementing these changes?
The thresholds set per country pose a significant administrative burden on traders and impedes the development of intra-community online trade. Low value consignments set for goods of low value up to 22€ have undoubtedly led to abusive practices.
As a result, Member States lose a significant part of their tax revenues.
At the same time non-EU businesses selling goods from 3rd party countries to consumers in the EU can make VAT-free supplies into the EU and are not required to register for VAT. That means they profit from a clear commercial advantage compared to their EU established competitors.
VAT changes in July 2021 in detail:
Distance selling Thresholds in EU states
The existing per country thresholds for intra-community distance sales of goods will be abolished and replaced by a new EU-wide threshold of 10 000 EUR. Below this amount, the supplies of TBE services and intra-Community distance sales of goods may remain subject to VAT in:
- the Member State where the taxable person supplying TBE services is established
- where its goods are located at the time when their dispatch or transport begins
Per country distance selling thresholds will be abolished and sellers will now have to account for VAT in the country where the goods are sold if the unified threshold is exceeded. Previously, each country had their own distance selling threshold which, if surpassed, the seller was liable for VAT in that country.
|As an example, France currently has an 35,000€ threshold for goods. If the distance seller surpasses this limit on their annual turnover of sales in the territory of France then they should register for VAT in France and file a VAT return to the French Tax authorities.|
This Situation will change from the 1st of July:
- all eCommerce Sellers who surpass the unified threshold of 10.000 € need to pay VAT in the country of destination.
- if a business does not exceed the threshold of 10.000 € then it can still charge the VAT rate of the country where the shipment of goods initiates.
The Unified threshold takes under consideration the amount of sales a business has in all EU states, except the one where the business is registered and the goods are being shipped from.
Intra-community EU sellers who surpass the new threshold can either register and file their VAT returns in the country where they are selling their products. Or, if they are distance selling in more than one country, they can opt to file one VAT return for all of their cross-border sales to their local tax authorities by using the One Stop Shop. This option simplifies the process of having businesses to file VAT returns in all EU countries where their distance sales take place, but it is only applicable for consignments of goods up to 150€.
The main rule is that distance sellers with cross border sales of more than 10.000 € have to account for VAT in the country of the consumer.
Extension of the Mini One Stop Shop
Given the claimed success of the VAT Mini One Stop Shop (MOSS) allowing suppliers of telecommunications, broadcasting and electronically supplied (TBE) services to register for VAT in one Member State and to account in that Member State for the VAT due in other Member States, this system will be extended to:
- Intra-community distance sales of goods
- other B2C services
- certain domestic supplies of goods, thus resulting in a bigger One Stop Shop (OSS)
Introduction of the Import One Stop Shop (IOSS)
Low value consignment VAT exemption towards the EU will be dismissed & the Import One Stop Shop (IOSS) will be introduced:
- The VAT exemption at importation of small consignments up to 22 EUR will be removed
- A new special scheme for distance sales of goods imported from third countries of an intrinsic value not exceeding 150 EUR will be created.
It’s referred to as the Import One Stop Shop (IOSS).
Exemptions to the IOSS
- For consignments of value up to 150 € there will also be an option to delay payment of import VAT and transfer the VAT collection obligation to the postal operator. In this case the IOSS is not used and the postal operator must collect and report VAT on their monthly return. This prevents the seller from having to pay the import VAT immediately ‘at the border’. This scheme is subject to a number of conditions.
- For consignments of value over 150 € that are sent from a location outside of the EU, the EU buyer will be required to settle the import VAT and, if applicable, customs duties. There are no obligations here for the seller.
Special provisions will be introduced whereby a business facilitating supplies through the use of an online electronic interface (EI) is deemed for VAT purposes to have received and supplied the goods themselves (“deemed supplier”).
Deemed supplier – the taxable person who is deemed to receive the goods from the underlying supplier and to supply the goods to the final consumer.
As an Electronic interface we can encompass a:
- application program interface (API)
Therefore marketplaces such as Amazon will be required to account for VAT instead of the distance seller in many cases.
At the same time, new record-keeping requirements will be introduced for businesses facilitating supplies of goods and services through the use of an electronic interface, including where the electronic interface is not a deemed supplier.
How can you prepare your business for the new VAT Changes in 2021?
With the UK leaving the EU, the global pandemic that has had a great impact on VAT, and the new changes that are set to take place in July 2021 it is going to be an eventful year regarding Indirect Taxes. All eCommerce sellers need to adapt and prepare to the new rules.
The changes mentioned above entail further intricacies and each eCommerce seller will be impacted on a different level depending on many factors. It is imperative that each organization is ready for these changes and we suggest that businesses consult a VAT compliance specialist in order to make sure that they are ahead of the changes and their business continues to run smoothly with no interruptions.
To stay ahead of these changes eCommerce businesses should:
- Investigate if they are in need of an EORI registration in Europe or Great Britain.
- Assess their eligibility for the Import One Stop Shop or register for another simplification mechanism if they qualify for this service.
- Update their ERP systems to be in accordance with the new changes starting July 2021.
- Be proactive and act now in case of a VAT registration or deregistration since delays are likely to occur after July 1st and this can translate to delays at the border and further unnecessary costs for businesses.
- Consult their local compliance office for a more detailed assessment of their VAT needs and compliance.
VAT regulations are subject to frequent changes. In order for eCommerce sellers to optimize their VAT process management they will require a combination of in-depth indirect tax expertise along with timely and accurate reporting. There are companies specializing in VAT, such as Global VAT Compliance, that can provide you a full VAT assessment, VAT registration and reporting in every jurisdiction globally so that you can focus on your expanding online business.
2021 undoubtedly started with some major changes as VAT and eCommerce were directly affected by Brexit. The pandemic still affects many aspects of eCommerce one of which is VAT and there are still changes to come after July 1st. The intricacies of the indirect tax landscape require expertise and we suggest that all eCommerce businesses, Amazon related or not, protect themselves by assigning their VAT related obligations to a dedicated VAT compliance specialist.