Updating VAT for cross-border eCommerce

by | Feb 6, 2020 | Blog

Online businesses operating in the EU need to be aware of changes taking place in the industry. Many of these changes concern Value-Added Tax (VAT) rules. These mandates have been in motion since 2017, and are expected to be finalised in 2021, with all regulations in full effect. It is important that as an eCommerce you understand your responsibilities and how these updates to VAT will affect your business.

In November last year, the European Union Council adopted new measures to implement the bloc’s transition to new VAT rules for eCommerce, that are to come into force in January 2021.

  • Council Directive (EU) 2019/1995 amending Directive 2006/112/EC as regards provisions relating to distance sales of goods and certain domestic supplies of goods.
  • Council Implementing Regulation (EU) 2019/2026 amending Implementing Regulation (EU) No 282/2011 as regards supplies of goods or services facilitated by electronic interfaces and the special schemes for taxable persons supplying services to non-taxable persons, making distance sales of goods and certain domestic supplies of goods.

The aim is to simplify VAT obligations for eCommerce companies carrying out cross-border sales of goods or services to final consumers and to ensure that VAT on such supplies is paid correctly to the Member State of the customer, in line with the principle of taxation in the Member State of destination.

The Commission has proposed introducing this legislation in two stages.

  • The first measures entered into force in 2015. They covered telecommunications, broadcasting and electronic services.
  • The second measures were adopted in December 2017. They included regulations for distance sales of goods, as well as for any type of service supplied to final customers in the EU.
  • These latter measures, referred to as ‘the VAT eCommerce package’, are to come into effect in 2021.

Mini One Stop Shop (MOSS)

Since 2015, B2C suppliers of telecommunications, broadcasting and electronic (TBE) services in the EU have had a simplified system to declare and pay VAT. This system is called the Mini One Stop Shop (MOSS). 

The VAT eCommerce package

The Digital Single Market Strategy placed the VAT eCommerce package as a priority.

In 2017, the Council adopted the VAT eCommerce package that consists of:

Last year, the Council adopted the measures to implement the VAT eCommerce package which include:

The package

The VAT eCommerce package is intended to facilitate cross-border trade, combat VAT fraud and ensure fair competition for EU businesses. The new rules include:

  • Improvements to the current MOSS
  • Special provisions applicable to the supply of goods facilitated by electronic interfaces
  • Extension of the scope of the MOSS, turning it into a One-Stop-Shop (OSS), to:
    • B2C supplies of services other than TBE services
    • Intra-EU distance sales of goods
    • Certain domestic supplies of goods facilitated by electronic interfaces
    • Distance sales of goods imported from third countries and third territories in consignments of intrinsic value of a maximum of €150

The implementation calendar

The VAT eCommerce package will be implemented gradually. Below is an overview of the key dates:

2019

  • Introduction of two thresholds:
    • to simplify VAT obligations for microbusinesses and SMEs.
      • An annual turnover threshold of €10,000 for intra-EU cross-border supplies of telecommunications, broadcasting and electronic (TBE) services.
      • Up to €10,000 TBE supplies remain subject to the VAT rules of the Member State of the supplier.

An annual turnover threshold of €100,000, up to which the vendor must only keep one piece of evidence (instead of two) to identify the Member State of the customer.

    • For invoicing, the rules of the EU country of identification of the supplier will be applicable instead of the rules of the Member States of consumption (i.e. that of the customer).
    • Close a gap in the current MOSS: a business not established in the EU, but that has:
      • a VAT registration in the EU (e.g. for occasional transactions)
      • can make use of the non-Union scheme (i.e. the scheme for taxable persons not established in the EU).
  • Improvements of the current MOSS entered into force on 1 January 2019.

2021

The extension of the MOSS and the special provisions concerning the obligations of electronic interfaces are to enter into force on 1 January 2021, as IT systems need to be adapted or developed.

  • Businesses operating electronic interfaces, such as marketplaces or platforms will (in certain situations) be deemed for VAT purposes to be the supplier of goods sold to customers in the EU by companies using the marketplace or platform. Consequently, they will have to collect and pay the VAT on these sales.
  • Building on the success of the MOSS for TBE services, this concept will be extended and turned into an OSS:
    • The non-EU scheme for supplies of TBE services by taxable persons not established in the EU will be extended to all types of cross-border services to final consumers in the EU;
    • The Union scheme for intra-EU supplies of TBE services will be extended to all types of B2C services, as well as to intra-EU distance sales of goods and certain domestic supplies facilitated by electronic interfaces. The extension to intra-EU distance sales of goods goes hand in hand with the abolition of the current distance sales threshold, in line with the commitment to apply the destination principle for VAT;
    • An import scheme will be created covering distance sales of goods imported from third countries or territories to customers in the EU up to a value of €150.
    • Unlike today, when the import scheme is used, the seller will charge and collect the VAT at the point of sale to EU customers and declare and pay that VAT globally to the Member State of identification in the OSS. These goods will then benefit from a VAT exemption upon importation, allowing a fast release at customs.
    • The introduction of the import scheme goes hand in hand with the abolition of the current VAT exemption for goods in small consignment of a value of up to €22. This is also in line with the commitment to apply the destination principle for VAT.
    • Where the import OSS is not used, a second simplification mechanism will be available for imports. 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.

Who benefits?

  • Businesses will benefit from a substantial reduction in cross-border VAT compliance costs. This will facilitate greater cross-border trade.
  • EU Businesses will be able to compete on equal footing with non-EU businesses that are not charging VAT.
  • Member States will gain through an increase in VAT revenues of €7 billion annually.