EU Value Added Tax e-commerce package - FAQs

Q. What is the EU VAT e-commerce package? 

The EU VAT e-commerce package is a reform to the existing VAT obligations for sellers that will come into effect on July 1, 2021. This package includes some key changes that will simplify VAT returns, and it will impact the way online sales happen across the EU.

Q. Where does the EU VAT e-commerce package apply? 

The EU VAT package applies to the online supply of goods and services throughout the EU. However, the protocol for Northern Ireland is slightly different and applies only to goods. The UK will implement this package with respect to goods being supplied back and forth from Northern Ireland, while services that are supplied back and forth from Northern Ireland won’t count towards the threshold that will be implemented.

Q. What’s the purpose of the EU VAT e-commerce package? 

The new rules have been introduced to make administrative work and VAT collection a lot easier for businesses selling to customers across the EU and UK. Simply put, this package will allow sellers to make sales across the European Union on a single VAT return in their home country, instead of having to register for VAT in each country. With simpler VAT returns and reduced compliance obligations, cross-border online trade and trade across EU’s digital single market will grow faster.

Q. What’s new in the EU VAT e-commerce package? 

The two major components of the new EU VAT e-commerce measures are the OSS (One Stop Shop) and IOSS (Import One Stop Shop), which are portals that allow taxpayers to report and pay VAT on a quarterly and monthly basis respectively.

The OSS is applicable only for online intra-community distance sales of goods across the EU. In simpler terms, intra-community distance sales are those in which VAT-applicable goods are sold from one EU country to another EU country. The IOSS, on the other hand, allows suppliers and online marketplaces selling imported goods to collect and pay VAT directly, instead of putting the VAT burden onto the buyer. This means that marketplaces become deemed suppliers and will be responsible for collecting VAT for sales made through their platforms. 

Q. What else is changing in the EU VAT e-commerce package?

The EU VAT e-commerce package includes the following changes to the existing VAT rules: 

A) Launching the OSS and IOSS

• The OSS and IOSS extend the MOSS (Mini One Stop Shop) by removing the VAT exemption for low-value imports, and by including more services and goods, even those imported into the EU.

• Using the OSS, taxpayers can register once and file one EU VAT return for ecommerce distance sales across the EU.

• Using the IOSS, suppliers and online marketplaces selling imported goods can collect and pay VAT directly.

B) Replacing the distance selling thresholds with a pan-European threshold

• While distance sales of B2C goods will continue between EU member states and Northern Ireland, the existing EU distance selling thresholds will be removed as of July 1, 2021, and will be replaced with a new threshold.

• Previously, VAT only applied to intra-community distance sales, with a specific annual turnover threshold for certain countries (€35,000 for sales to most EU countries, and €100,000 for Germany, the Netherlands, and Luxembourg).

• With the new measures, a single pan-European threshold of €10,000 (£8,600) is applicable for all businesses with a permanent address and VAT registration in the EU.

• This threshold change is mandatory, and will apply to all cross-border sales by businesses across the EU.

C) Removal of Low Value Consignment Relief (LVCR)

• The LVCR is a VAT relief option where imports of goods lesser than €22 (£20) could be exempted from import VAT. This has been abolished.

• After July 1, 2021, VAT will be charged on all B2C consignments. Those that are worth €150 (£130) or less can be reported via the IOSS portal at the point of sale. For goods that exceed this amount, the existing rules will continue to apply.

Q. What and who does the EU VAT e-commerce package impact?

These changes will impact the collection of VAT when it comes to:

a) Movement and sale of B2C goods between Northern Ireland and the EU, and

b) Import of low value goods (consignments with an intrinsic value of not more than €150 or £130) into the EU or Northern Ireland. 

It will also replace the existing thresholds for each country with a pan-European threshold of €10,000.

These measures will impact everyone in the ecommerce supply chain, including online marketplaces. Two changes (the One Stop Shop and the Import One Stop Shop) are optional, and can be used by businesses outside the EU, including the UK. The package will also impact non-EU businesses with goods located in Northern Ireland that are intended for sale. These new VAT measures only apply on online sales to customers in the EU.

Q. How are online marketplaces affected by these new measures?  

Online marketplaces facilitating the sale of goods in either of the following situations will become deemed suppliers:

1. Goods located in Northern Ireland or EU, sold by non-EU businesses to non-VAT registered customers in Northern Ireland and EU

2. Goods located in Northern Ireland, sold by businesses in Great Britain to EU customers.

When a marketplace becomes a deemed supplier, it should account for VAT for sales that are made through its portal as if they are its own sales. VAT will be charged at the point of sale. The marketplace will be accountable for VAT when it facilitates distance sales or any domestic transactions for non-EU sellers. Marketplaces have to use IOSS (if it’s opted) to collect and pay VAT for the sale of imports that don’t exceed €150.