European webshops have been struggling with a fragmented tax landscape for years. Anyone who delivers parcels in 27 different Member States currently has to take into account 27 different VAT regimes and in many cases has to register 27 times for VAT purposes and file 27 declarations every month or quarter. This creates a huge overhead cost for cross border webshops throughout Europe, also and especially because VAT rates in the EU can vary considerably (and that is something that will not change in the short term, since Member States cling to their fiscal autonomy).
This cost comes on top of the unfair competition European webshops are experiencing from cheap imports from outside the EU (often from China), which in many cases escape European VAT payments.
The EU wants to remedy this by introducing new VAT rules for webshops. These new rules will come into effect on July 1, which means it is time to prepare if you are active in cross border e-commerce. We summarize the new rules below. If you prefer to have a good round-up in a clear webinar, you can subscripe to the “Export Training” webinar that we will give on June 14 in the Gondola Academy for Safeshops.be.
A quick brush-up on the the current rules
Anyone who supplies cross-border goods and/or services across the EU today must take into account a series of different rules:
- A ‘reverse charge mechanism’ applies to B2B delivery of goods and services. You prepare your invoice without VAT and the professional recipient in another Member State must arrange for VAT declaration and payment in his or her Member State.
- There is currently a system of ‘threshold amounts’ per Member State for B2C delivery of goods. These thresholds range from 35,000 to 100,000 euros. Anyone who sells for an amount above the threshold to a certain Member State over a period of one year must from then on take out a local VAT registration, charge local VAT rates and make local VAT returns and payments. As long as you stay below the thresholds per Member State, you are subject to you own local (in our example Belgian) VAT.
- For B2C delivery of ‘digital’ services (hosting, telecom, software, apps, music, online gambling…) there is already another threshold of 10,000 euros. If you stay below that threshold with cross border sales, you simply charge Belgian VAT. If you pass the threshold, you will have to charge your customer’s local VAT. The difference with the B2C delivery of goods is mainly in the ‘Mini One Stop Shop’ or ‘MOSS’ system that allows you to declare and pay all VAT amounts for all Member States to which you have sold via your Belgian VAT return in one single declaration for the entire EU. Non-EU suppliers must always charge the customer’s VAT from the first delivery and the threshold of 10,000 therefore does not apply to them today.
- The previous system does not apply to the delivery of classic ‘offline’ services. There, the charging of the local VAT + local declarations and payments is still required.
What will change in the VAT rules from 1 July?
The new regulation from 1 July will entail various adjustments. We briefly summarize some important adjustments here:
- The B2C delivery of both goods and services will in the future be based on one and the same, simplified system .
- The threshold amounts of 35,000 to 100,000 euros per country for the delivery of goods will disappear and will be replaced by a single global threshold of 10,000 euros. Anyone who sells goods and/or ‘digital’ services for more than 10,000 euros per year outside his or her own Member State will have to charge the customer’s local VAT rates instead of their own VAT rate. This also means that webshop operators have to take into account foreign VAT rates much faster. After all, the threshold of 10,000 euros for the entire EU will be reached much faster than the prior 100,000 euros per Member State threshold.
- Below the threshold of 10,000 euros, webshops may choose to either apply their own VAT, or to immediately from the initial sale use the cross border regime and thus the local VAT of the customer
- Since the threshold will be considerably lower, more webshops will have to comply with cross border VAT rules, but in return the declaration and payment of this VAT is radically simplified: the ‘Mini One Stop Shop’ system that already existed for services is now being expanded into a ‘One Stop Shop’ system for all cross border VAT. In other words, this means that all VAT returns for the supply of goods throughout the EU and for the supply of ‘digital’ services throughout the EU can be included in the Belgian VAT return and it is no longer necessary to file local returns, nor to make local payments.
Even more changes
The rules for parcels with a limited value will also change in one go on 1 July. Until now, parcels with a total value of less than 22 euros, from sellers outside the EU, were exempt from VAT. For parcels of a higher value, VAT is due by the customer at the time of delivery, causing regular frustration for unsuspecting buyers who are asked by the postman to pay the VAT amount in cash upon delivery.
Those rules are now changing. The changes are important for non-EU webshops, for European platforms and marketplaces that host sellers from outside the EU and for dropshipment sellers:
- From 1 July, VAT wil always be due on all B2C sales or service deliveries from outside the EU. In the past, small shipments with a value of less than 22 euros were exempt from VAT. Small shipments will therefore also be taxed and that should eliminate part of the competitive disadvantage for European webshops with regard to -especially Chinese- cheap imports.
- A threshold amount of 150 euros will be introduced for ‘small’ parcels imported into the EU. For parcels with a value below this threshold destined for consumers (B2C sales), an ‘Import One Stop Shop’ or ‘IOSS’ system is introduced for the sale of imported goods.
- Sellers of such ‘small shipments’ can register in an EU Member State of their choice and can charge the customer’s local VAT on those small shipments in that Member State via the ‘Import One Stop Shop’ system or ‘IOSS’ system and fulfil the periodic VAT returns for the entire EU in that one member state.
- The IOSS system is optional. Those who do not register however put the responsibility for the VAT payment with their clients, who will have to pay the VAT amount due in cash to the courier or postman upon delivery.
- If the sale takes place via a European intermediary (the law speaks of an ‘Electronic Interface’, which actually includes sales via a European marketplace or via a European webshop that realizes dropshipment sales), the responsibility for compliance with the VAT obligations (via IOSS) lies with the European intermediary, which must ensure that the correct VAT is charged to the consumer, that the declarations are made and that the VAT is passed on to the tax authorities.
- Sales over 150 euros, also by non-EU sellers, are of course subject to the general OSS system.
Prepare your webshop in time!
For online merchants, the most important point of attention – in addition to the effective VAT return, of course – is the technical challenge of ensuring that the correct price, including local VAT, is always shown to the right potential customer. For example, VAT rates on the supply of goods range from 17% in Luxembourg to 27% in Hungary and since consumer law requires that consumers always see the correct total price, including VAT, identifying website visitors and dynamically adjusting prices for internationally active webshops a real necessity.
The alternative as a webshop is that you only show one price, including Belgian VAT, but that you settle the VAT differences yourself behind the scenes. Be careful though! This can make your product more expensive than local competitors in certain countries and it can also unexpectedly eat into your profit margin…
Need help or have questions about e-commerce or VAT?
We are happy to make time for you. Feel free to call or email Bart Van den Brande at bart@siriuslegal.be or +32 492 249 516 or book a free online introductory meeting with Bart here via Google Meet or Zoom.
