2021 is certainly becoming a big year for VAT change. Merchants saw a substantial change to international ecommerce, customs and VAT over the last few months, with the overwhelming impact of brexit being felt by many across the UK and EU. There will be even more change to come with sweeping reforms to the EU VAT obligations for B2C ecommerce sellers.
27 of the member states of the European Union voted to introduce a reform to the current VAT. The aim is to boost cross-border trade along the EU's single market through reducing compliance obligations.
We have put together an article explaining what VAT changes are happening for UK merchants selling into the EU, what the impacts are and how you can prepare for July 2021.
Download the “How to get your store EU VAT ready” ebook and get your store qualified for the new EU VAT requirements.
Changes going forward:
- Removal of €22 VAT threshold
- Orders below €150 VAT charged at point of sale & remitted to EU
- Orders above €150 - VAT charged at point of clearance & charged back to merchant
- One Stop Shop (OSS) EU VAT return
1. Removal of €22 VAT threshold
The first change is the removal of the €22 VAT threshold. Currently, the EU allows a VAT exemption for small parcels below 22 euros being imported into the EU, to encourage trade. This threshold is going to be withdrawn.
This exemption has been under scrutiny due to 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 exceeding €150, which is declared and paid through the IOSS (Import One Stop Shop).
2. Orders below €150 VAT charged at point of sale & remitted to EU
For orders below €150, VAT will need to be charged by the merchant at the checkout, and then remitted back to the EU authorities. Non-EU sellers will have a choice 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.
Registering with the IOSS does have it’s advantages. The way it works is VAT is charged and collected at the point of sale on orders below €150, when selling to EU customers. The tax rate will be then set at the customer’s local rate. Tax must then be declared each month and remit the total EU VATcollected in an online tax return.
In return, products will be treated with “VAT exemption” upon arrival, enabling them to move through customs much faster and get to customers sooner.
If any seller chooses not to use the IOSS, the customer will have to pay the delivery or customs agent to access their goods, risk a positive buyer experience as well as any potential delays at customs.
3. Orders above €150 - VAT charged at point of clearance & charged back to merchant
For orders above €150 the process is slightly different. VAT is going to be charged by the cross-border carrier and then charged back to the merchant or the buyer at the point of delivery.
Being aware of these tax regulations are inherently important for US, UK and other EU merchants selling into the EU. Having the correct VAT displayed for your customers when they’re purchasing your products reduces any negative experience of having to pay extra at customs, as well as potential shipping delays.
4. One Stop Shop EU VAT Return
A One Stop Shop (OSS) EU VAT return will be rolled out and replace the current MOSS (Mini One Stop Shop) scheme for distance sales of goods. Merchants who are selling their goods to EU customers may opt to use this OSS to report all their EU sales, instead of having to be VAT registered in each country once the merchant passes that country's selling threshold.
Whilst this is predominantly aimed at EU merchants, it is also relevant for UK/US merchants selling into the EU. Merchants can start using the OSS system, which is to be paid to their home country’s tax office.
For those non-EU merchants who are using fulfilment centres or stock holding in warehouses in EU states, it’s worth noting that you will have to continue to be foreign VAT registered in those countries.
In addition to these changes, the national state thresholds (on average around €35,000 per year) will be replaced by a single EU threshold of €10,000 for cross-border sales and services, removing any VAT advantages of sellers established in EU states with lower VAT rates. The OSS will pay the VAT owed to each member state, removing the requirement of a non-EU merchant to have multiple state VAT registrations.
What do merchants need to do to be ready by 1 July?
There are a lot of changes that will be implemented for both UK and US merchants selling into the EU, from the 1st July and transitioning through these changes can appear time consuming.
Here’s what we recommend:
- Register for IOSS for VAT exemption on orders under €150
- Register for OSS for simplified EU tax returns
- Display localised VAT on products
- Integrate Total Landed Cost calculations into checkout
One of the most important things that you need to consider what systems need to be put in place to ensure a smooth transition to the new VAT regime, and to ensure that transitioning through these changes doesn’t affect the buyer experience of your customers.
Download the “How to get your store brexit ready” ebook and get your store qualified for brexit's requirements.
This is where Glopal can help.
Glopal’s ecommerce tax and duties solution enables merchants to not only keep up to date with all the constant changes to VAT, Taxes and Duties in their markets, but enables you to sell into the EU and other international markets hassle-free.
We manage every step in the global ecommerce process from discovering international markets and international buyers for your products, automatic HS product classification, tax & duty calculations, through to customs documentation and shipping label generation and returns.
Our tailored ecommerce solution is designed to manage your entire international process through the VAT change and enable you to sell into any EU market hassle-free from July 1st.
We can help your store meet the VAT requirements and launch into the EU:
- Identify top international markets for your products.
- The solution localises the product feeds into over 25 currencies, providing buyers with the same local experience they’d expect.
- Glopal’s guaranteed total landed cost reduces international delivery times and includes all customs duty and tax. Glopal's ‘Delivery Duty Paid’ solution integrates seamlessly with your existing checkout.
- Glopal’s automated HS classification and customs declaration enables you to classify all your products and keep up to date. It offers a prohibited items check that automatically identifies restricted and prohibited items for export to specific destinations and informs the buyer in order to prevent delayed or failed shipments. This verification can also be performed offline and full product catalogs can be processed via our API.
- Glopal’s international shipping creates a seamless and simple process, enabling merchants to ship their products overseas at a cost effective & competitive rate, whilst also providing a streamlined, hassle-free returns option.
To learn more about the VAT changes and how to enable your store to continue selling into the EU, get in touch with one of our ecommerce experts today.