New regulations entered into force as of the 1st of June 2021, which affect stakeholders of the entire online retail supply chain. Within the European Union, and outside, sellers, markets/platforms, postal operators, message handling businesses, customs, and tax administrators of the various Member States of the European Union, without forgetting the consumers are affected.
What do these changes consist of?
Two principal changes concern all online sellers, whether it be good sold, services rendered, or the market upon which they operate (inside or outside the EU). The latter may benefit from the changes to the legislation with respect to VAT for e-commerce, which has been expanded with the objective of simplifying their VAT obligations.
A single threshold for the entire European Union
A new threshold of 10,000 euros is implemented for all countries of the European Union. Previously, each threshold depended on the Member States and was between 35,000 and 100,000 euros. All operations falling below this threshold continue to apply the French law concerning VAT for their cross-border sales. However, if the sales exceed this threshold, VAT is payable in the country of location of the buyers. To do this, you may register at a single portal (OSS), where you can declare and pay the VAT owed in the other Member States.
The removal of the exemption of VAT upon importation
For the importation of goods with a value of less than 22 euros, the VAT exemption is no longer applied. Consequently, all goods imported to the EU are subject to VAT. The single portal upon importation (IOSS) was created to simplify and facilitate payment of VAT declarations for distance selling of imported goods to the EU (valued at less than 150 euros). Upon registration to the IOSS, the clients can consult the final price, inclusive of VAT, which they will be required to pay.
However, if they do not register, the clients will be required to pay the VAT for the imported goods to the EU via postal operators or message-handling business, which will require payment to take the necessary steps.
This is a very important element given that in the EU, clients are used to seeing the final price, inclusive of VAT, before paying for the product. If the final price upon payment is different from the advertised price, the package may be rejected, resulting in a loss for the client.
What are the benefits of the new regulation?
These new regulations have numerous benefits. First, the buyers pay the same amount of VAT for goods purchased in their own country as they do for goods purchased online (regardless of whether they come from the European Union or elsewhere in the world). As previously explained, these rules ensure that the VAT is paid at the place of consumption of the goods.
Moreover, there is a reduction of administrative burden and management costs. EU businesses will be able to overcome the issues with cross-border e-commerce with greater ease. Competition between internal and external suppliers in the EU will be maintained, and the internal market will broaden.
Finally, the Member States will benefit from less VAT fraud in cross-border exchanges.
Are all operations affected?
The new rules in force affect all operations in the following categories:
- All distance selling of goods in the EU (intra-community) performed by suppliers or users of a digital interface are deemed subject thereto;
- National sale of goods by users of a digital interface are deemed subject thereto;
- Performance of services by intra or extra-community suppliers to final consumers in the European Union;
- Distance selling of imported goods from third countries or territories valued at less than 150 euros. The above must be performed by suppliers and users of a digital interface deemed subject thereto (except for goods with special taxes).
For any questions regarding this new regulation, or if you need help to administer it, do not hesitate to contact our legal consulting firm, Delaguía&Luzón. Our team of tax professionals will be able to guide and assist you with the handling of your fiscal matters.