In less than a week, on the 1st of July 2021, the new tax regulations will apply to cross-border eCommerce. Initially, the date to enter into force was the 1st of January, but due to the practical difficulties created by the measures taken to contain the coronavirus pandemic, the application of the new VAT e-commerce rules is postponed by six months. A detailed explanation is available at the official website of the European Union. In this article, we are going to describe the most important changes which may affect some of the companies.
The primary targets of these changes are EU merchants with a yearly threshold of over €10 000 and merchants outside of the European Union who still import goods there.
Just to remind, currently, the sellers do not have to register for taxation purposes in foreign EU countries until their B2C sales there do not exceed a specific threshold (the detailed list of amounts that are applied now is available here). The tax rates apply as if the sales were made in the merchant’s country. But once the threshold is crossed for a specific destination, the seller should register, submit VAT returns and charge the tax rates of this very country.
Once the changes apply the new threshold of €10 000 will be applied EU-wide. The registration is still required once it is crossed, but there will be an option to do this via the new system - One Stop Shop (OSS).
This will be much handier for merchants since they won’t need to file VAT returns for each country where the threshold was crossed. Only one is needed for the European Union. Tax payment works the same way - only one payment should be made and it will be distributed among the countries where the goods were supplied. The system extends the existing mini One Stop Shop (MOSS) scheme which is currently applicable to the digital service providers (you can learn more here). But please note that domestic sales still must be reported locally and local VAT must be paid.
As for the sellers located outside of the European Union - they will need to register even for their first sale inside the Union. The tax exemption for the importation of goods with a value less than €22 will become obsolete.
The purpose of Import One Stop Shop (IOSS) creation is to simplify the taxation process for the sellers outside of the European Union. You may read about it here. The merchants who decide to apply VAT for the consignment worth less than €150 will be able to submit a single declaration. IOSS also may speed up the importing process. For example, if the VAT was paid at the point of sale, the merchant may enter their IOSS number in the invoice data for customs declaration.
However, if the seller decides not to register, the tax for consignments below €150 will be charged from the customer when the goods are imported into the European Union. And if the value is above €150 the VAT is also applied upon the import.