On 1 July 2021, the 27 member states of the European Union (EU) will introduce sweeping reforms to the VAT obligations for B2C e-commerce sellers and marketplaces. This includes major changes:
- Launching the One-Stop-Shop EU VAT return;
- Ending low-value import VAT exemption and new IOSS return; and
- Making marketplaces deemed supplier VAT.
The flag-ship reform will mean some sellers will be able to report all their pan-EU sales on a single VAT return in their home country instead of having multiple VAT registrations across the EU. The aim is to boost cross-border online trade and promote trade across the EU’s digital single market by reducing compliance obligations. UK has implemented VAT marketplace liabilities reforms from 1 January 2021. The 2021 EU VAT e-commerce package was delayed, including this reform to 1 July 2021 - original date 1 Januarry 2021.
The changes also seek to tackle the stubborn €5 billion e-commerce VAT fraud gap, with member states looking to close import loopholes and co-opt online marketplaces into collecting VAT in place of sellers.
This guide provides an overview of the major reforms, and how it will affect sellers and marketplaces’ obligations. This is based on three major reforms planned for July 2021.
1. A single EU VAT return for ecommerce distance selling
When the reforms come into effect, the existing ‘Distance Selling Thresholds’ simplifications will be withdrawn. This will be accompanied by the roll out of a single EU VAT return, One Stop Shop (‘OSS’). Sellers shipping goods from their home country to customers across the EU may opt to use OSS to report all their pan-EU sales. This is instead of the current requirement of being VAT registered in each country once the seller has passed the relevant country distance selling threshold. This is an extension of the 2015 Mini One-Stop-Shop (‘MOSS’), which successfully trialled a single EU return for B2C sales of digital, telecoms and broadcast services (streaming media, e-books, apps etc.).
Implications: It’s important to note that no action is required until 2021. After July 2021, some e-commerce sellers will be able to close their foreign VAT registrations. They can instead complete a quarterly OSS return for their home country’s tax authority. Non-EU sellers may use OSS, too. OSS will list: sales by EU country, VAT % used, and VAT due. This VAT must be paid to the home country’s tax office.
Note: Sellers holding stocks in warehouses in other EU states will still have to remain foreign VAT registered following the July 2021 reforms. This includes sellers using the Fulfilment by Amazon (FBA) program. There will be exceptions for sellers using marketplace facilitators (see Section 3).
In addition to distance selling, the B2C service and event organisers may use OSS.
2. Closing the import VAT exemption loophole – import ‘Green Channel’
From July 2021, the €22 VAT exemption on small parcels being imported into the EU for delivery to consumers will be withdrawn. This exemption has been heavily abused by many sellers mistakenly or deliberately under-declaring the import values of goods to avoid VAT. Instead, VAT must be charged at the point-of-sale for consignments not exceedng €150. This VAT is may be declared and paid via a new submission, the ‘Import One Stop Shop’ (IOSS). This will create a more efficient fast-track, or ‘Green Channel’, quick and easy customs clearance.
Implications: From July 2021, EU sellers will no longer be disadvantaged on price, as non-EU sellers will have to charge VAT on all imported goods. Non-EU sellers will have to register for IOSS in just one EU state to declare the VAT on any affected imports on shipments below €150. This is known as the ‘non-Union scheme’. However, non-EU sellers will require at least one regular VAT registration in one Union member state. There are instances where a facilitating marketplace (see marketplace deemed supplier rules), or delivery service may step in to report and pay the VAT. If any seller choses not to use the IOSS, the customer will have to pay the delivery or customs agent to access their goods.
However, sellers and marketplaces may opt instead to use the Special Arrangements and have postal agents and customs agenst instead collect the import VAT on consignments not exceeding €150.
3. Marketplaces become the deemed supplier and VAT collector
The July 2021 reforms will oblige marketplaces which facilitate cross-border sales to consumers via third parties to become the ‘deemed supplier’ in certain cases. This is also termed the full liability regime. This marketplace VAT liability does extend to product liability.
The EU has defined ‘facilitating’ as “electronic platforms assisting sellers and consumers to come together and strike a contract for the supply of goods on a cross-border basis”. The new deemed supplier regime will apply in two use cases when the marketplace is facilitating a B2C sale: imports not exceeding €150; and distance selling cross-border or domestic transactions of any value for non-EU sellers. There is scope for the marketplace to opt-out of this scheme, and the VAT obligations to be transferred to the delivery company of the seller.
Implications: After July 2021, marketplaces will become responsible for charging and collecting VAT on deemed supplier transactions. However, the marketplace does not take on product liability or regulatory obligations. 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.
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