New EU VAT rules from 1st July 2021
The reforms coming in under the EU’s program for Modernizing VAT for Cross-Border E-Commerce were set to take effect on July 1, 2021. The amendments, which were supposed to take effect on January 1st, were designed to simplify VAT responsibilities for enterprises making cross-border deliveries of goods and services, but the implementation was postponed because of the coronavirus pandemic to allow Member States and businesses additional time to prepare. Comprehensive guidance can be found on the European Commission Website at: –
There are useful links within the guidance to detailed Explanatory notes, and summaries for each of the schemes mentioned below.
The following is a summary of the current measures that affect the supply of products and services to EU consumers. Because supply of products (but not services) fall under the Northern Ireland Protocol, the measure on goods impacts supplies of goods from stocks held by businesses in Great Britain and stocks held by firms in Northern Ireland in different ways.
From 1st July 2021: –
Small businesses urged to act fast as new EU VAT rules set to cost £180m
- Following the United Kingdom’s exit from the European Union, the new rules will effect British businesses.
- The import One Stop Shop (IOSS) system will allow UK business to register and account for VAT in a single EU member state.
As the EU imposes new VAT laws on sales from outside the bloc, an estimated 26,000 online retailers would face £180 million in additional red tape charges.
VAT exemption on low value consignment is not available anymore.
VAT exemptions for SMEs and shipments under €22 (£19) will be removed under new EU ‘One-Stop Shop’ (OSS) rules. This means that about 26,000 UK e-commerce sellers may need to register for VAT for the first time in an EU member state.
How much new EU VAT laws will cost to UK companies?
The majority of these companies will have to fork out at least €8,000 a year each, which is roughly £180m in total.
Tamara Habberley, senior consultant at The VAT People, a professional firm that provides VAT and customs advice and training to businesses, said: “My main piece of advise is to plan ahead of time. When the UK exited the EU, many businesses were taken off guard by the VAT changes, although many of these changes can be managed if the business understands the implications.”
If the new VAT rules apply to your business, you’ll have three options when trading into the EU:
- Register for VAT in a member state of the EU (for the purpose of charging VAT at the rate applicable in the EU member state where the goods are shipped to)
- Subcontract VAT compliance to selling platforms such as Amazon or eBay
- Ask your postal service to handle VAT (with that VAT generally being paid by the customer prior to taking delivery of the goods)
Businesses that conduct more than 150 transactions per year should register in an EU member state, according to The VAT People, because platforms normally charge sellers roughly 30% of gross prices for their VAT services.
When Amazon and other platform operators enable the supply of items worth less than €150, they will be required to declare the VAT payable on the transaction.
“This all sounds a little scary, especially because it follows the pandemic and Brexit. However, businesses can continue to sell to EC consumers and so keep a lucrative customer base if they either ensure that they understand all of the changes before deciding to sign up for the OSS or IOSS, or seek expert guidance “Tamara continues.
Each EU member state has an online OSS portal, which firms can sign up to utilise for transactions occurring on or after July 1, 2021. This single registration will be valid for all online dealers’ qualified supplies (including electronic interfaces).
However, a UK business will need to engage a local EU intermediary to enable it to sign up for EU VAT under the IOSS for the moment.
What is Import One Stop Scheme (IOSS)?
The Import One Stop Shop (IOSS) system, which is separate but linked, will allow UK enterprises that sell items to EU consumers for less than €150 to register and account for VAT in a single EU member state. Businesses using the scheme VAT register in one Member State (MS), using a local intermediary, and submit a local VAT return for that MS and a one stop shop return for all other MSs, declaring and paying over VAT at the applicable local rate. Where the goods are supplied via an online marketplace, the marketplace is responsible for accounting for the local VAT via their own one stop shop registration. Goods on which VAT is accounted for under IOSS benefit from a VAT exemption upon importation, allowing faster customs processing. More detail on the IOSS can be found in our earlier VQOTW at https://www.cronertaxwise.com/community/my-vip-tax-team-vat-question-of-the-week-import-one-stop-shop-ioss-one-stop-shop-oss/
Is it mandatory to register for Import One Stop Scheme (IOSS)?
Please note that as mentioned above, the IOSS scheme is not mandatory, it is a simplification. For sales outside the scheme, there are two options: –
- for the customer to be the importer of record – in which case the import VAT will be collected from the customer by the parcel courier, or
- for the supplier to be the importer of record, in which case the supplier will be treated as importing their own goods into the EU before the sale to the EU customer, and as a non-established taxable person making an onward supply of goods in the MS of importation, the supplier will be required to VAT register in that member state. They will be able to recover the import VAT but will then account for VAT at the local rate on the local VAT return.
What is Union OSS Scheme?
The Union OSS Scheme, formerly MOSS and used to account for VAT on Intra EU supplies of TBE (telecoms, broadcasting and Electronically supplied) services, is extended to cover all B2C services AND intra EU Distance Sales of Goods. This measure will not impact all UK businesses, but supplies of goods from stock held in Northern Ireland, covered under the Northern Ireland Protocol. are included within this simplification. There is a pan European threshold of €10,000 (£8,818) applicable to EU and NI established businesses only, below which the supply is treated as subject to VAT in the MS of supply, however where the supplies exceed that threshold, local VAT is required to be accounted for. Where a NI business registers for the OSS (and it can do so via its UK registration under the NI Protocol) sales above that threshold to other member states are declared via a One Stop Shop (OSS) return, without the former requirement to VAT register in each member state where the distance sales threshold had been reached. Guidance for NI Businesses from HMRC, with worked examples, can be found at EU VAT e-commerce package – GOV.UK (www.gov.uk)
What is Non-Union OSS Scheme?
The Non-Union OSS Scheme, for Non-EU established businesses supplying TBE services to EU consumers is extended to cover all B2C services where the place of supply is the EU. This simplification allows a Non-Union OSS registration to be used to account for VAT on supplies such as those listed below without the need to VAT register in each member state.
- Accommodation services carried out by non-established taxable persons,
- Admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions,
- Transport services,
- Services of valuation and work on movable tangible property,
- Ancillary transport activities such as loading, unloading, handling or similar activities, · Services connected to immovable property,
- Hiring of means of transport,
- Supply of restaurant and catering services for consumption on board ships, aircraft or trains etc.
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