As of 1 July 2021, new EU VAT rules for business to consumer (B2C) sales will be introduced. These new rules will affect UK suppliers selling goods to EU consumers online.
Why are new rules being introduced?
The new rules are being introduced to facilitate with EU cross-border trade, to ensure a fair competition for EU suppliers and to ensure that VAT is charged based on where the customer is located. The changes are also designed to combat VAT fraud.
The major changes from 1 July 2021 include:
- Withdrawal of distance selling rules and new single return for ecommerce sales;
- Removing import VAT exemption and new VAT scheme for imported goods – IOSS; and
- Online market places responsible for EU VAT.
1. Withdrawal of distance selling rules & new single return for ecommerce sales
Firstly, the existing ‘Distance Selling Thresholds’ for EU sales will be withdrawn from 1 July 2021.
Instead, cross-border sellers will have to charge the VAT rate of the customer’s country of residence at point of sale. This is to be accompanied by the roll-out of a single One Stop Shop (OSS) EU Return. This new OSS return will avoid the requirement to register for VAT in each applicable EU country. This is an extension of the MOSS which is currently used for accounting for VAT for digital supplies. Local businesses will be registered in their home country, and non-EU businesses can choose any member state to act as their VAT identification country. All pan-EU sales will then be included in a single OSS return.
The Union scheme which applies to EU businesses will extend to include the supplies of all types of B2C services, intra-EU online sales of goods and specific domestic supplies sold through digital marketplaces.
2. Removing import VAT exemption and new VAT scheme for imported goods – IOSS
This VAT change also affects imported goods into the EU so will have an impact on businesses who wish to sell goods to EU consumers that are based outside the EU, including the UK.
The EU is introducing a new imports scheme called Import OSS (IOSS) for goods worth less than €150. Non-EU businesses will have the option to register for this scheme in a member state of the EU.
In addition, from 1 July 2021, the VAT exemption for goods imported into the EU in small consignment of a value of up to €22 will be withdrawn. This is intended to level the playing field for EU businesses that are always charged VAT.
The options for non-EU UK sellers are therefore:
a) Use the new IOSS scheme
If using the IOSS, businesses will be required to register for the scheme in one EU country, and charge and collect VAT at the point of sale on products below €150 when selling to EU customers. The applicable VAT rate will be the customer’s local rate. Each month, the business must then declare and remit the total applicable EU VAT through an IOSS return. These sales will then benefit from a VAT exemption upon importation, allowing a fast release at Customs. Businesses will also have to consider their pricing structure as rates of VAT vary in the EU from 17% to 27%.
b) Alternative to IOSS
Where the Import OSS is not used, a second simplification mechanism will be available for sales to EU consumers worth less than €150. Import VAT will be collected from customers by the customs declarant (e.g. postal operator, courier firm, customs agents) which will pay it to the customs authorities via a monthly payment. This means that the customer will have to pay a fee to accept their package.
3. Online marketplaces responsible for EU VAT
After July 2021, online marketplaces will become responsible for charging and collecting VAT on deemed supplier transactions. For imports not exceeding €150, instead of import VAT the marketplace will charge the customer VAT at the point of sale and declare it instead of the seller. Both EU and non-EU sellers will benefit from reduced VAT obligations and may be able to deregister in some EU states.
How can we help?
At Chiene + Tait we are in a unique position to help you navigate these changes and help you to understand how the above changes will impact you and your business on a day-to-day practical level.
If you are concerned about expanding your business into EU markets, or how your current business with the EU might be affected, we can assist you by undertaking a review into your business and recommending to you the best course of action. Whether it be sales to EU consumers and businesses, importing goods from the UK, exporting goods to the EU and further afield, Customs Duties & Tariffs, we will help you find the ideal solution for you and your business.
Chiene + Tait is also part of a worldwide association of firms, including members in the EU, with whom we can communicate on your behalf or put you in touch with directly so that you can understand from professionals across the EU how the rule changes will affect you from start to finish.
Grant Funding Available
The UK government has confirmed that that there will be grant funding available of up to £2,000 for SMEs to receive advice and training on how changes brought about because of Brexit can affect your business. We can guide you through the grant funding process to ensure you get the best value and piece of mind.
We would recommend that any business that wishes to sell goods to EU consumers acts now to be in a position to be ready for these changes.
Contact our VAT and Indirect Taxes team at firstname.lastname@example.org, or 0131 558 5800 for help, advice or to arrange a review.