Are you ready for changes to the VAT rules?
Significant changes are coming to the VAT rules that will affect the online sale of goods to private consumers. The delayed EU VAT e-commerce package, which will be effective on 1 July 2021, makes changes to the VAT treatment of the supply of goods and services to a nontaxable person in an EU member state by a supplier in another EU member state, certain supplies made through an online marketplace and the import of low value goods to a nontaxable person in an EU member state.
Under the new rules, which are intended to reduce the administrative burden on businesses and ensure the collection of VAT throughout the EU, sellers supplying goods to end consumers in a member state (i.e., B2C sales) likely will not have to register for VAT purposes in every member state in which supplies are made. Instead a seller will be able to register, collect and file VAT returns in one EU member state via the One-Stop-Shop (OSS) or the Import-One-Stop-Shop (IOSS) electronic portals.
Overview of the OSS and the IOSS
The OSS is to be used by suppliers selling mainly goods that are already in the EU and the IOSS will apply where goods valued up to EUR 150 are sold directly to EU end-consumers from third countries (e.g., China or the U.S.). Electronic registration for the two schemes has been available since 1 April.
The tax period for the OSS will be quarterly and for IOSS, monthly. In the Czech Republic, the VAT due (which is to be paid in EUR) on all sales to EU member states will be reported for the relevant period in a single return that will be submitted to the tax office for the South Moravian Region. The Czech authorities will then distribute the VAT to the EU member state concerned.
Reporting in both the OSS and IOSS will be voluntary in that suppliers can still register for VAT in all EU member states in which they have customers, file VAT returns in those countries and pay VAT according to the rules of the relevant EU member state. However, it should be noted that the existing sales thresholds (i.e., which range from EUR 35,000 up to around EUR 100,000 (or the equivalent in EUR), depending on the EU member state) will be replaced by a single threshold of EUR 10,000. The EUR 10,000 threshold will apply to the total cross-border sales by the business throughout the EU, rather than on a country-by-country basis, as is currently the case. If the supplier registers for OSS, it will only have to file a single VAT return, instead of VAT returns in each member state where it is making VATable sales to end-customers. However, if the supplier opts not to register for the OSS and starts selling goods to end-consumers in a new EU member state in July, it likely will have to register for VAT in that member state and pay VAT from the first transaction. It will not be possible to combine the VAT on these sales in the member state and VAT on supplies that are paid through the OSS—either the supplier will pay VAT on all sales via the OSS or pay VAT individually in each EU member state where goods are delivered to end-customers.
Changes to rules on distance selling, online marketplaces and low value imports
Other changes that also apply as from 1 July include the following:
- The new rules on distance selling (i.e., the abolition of the selling thresholds) and the provision of certain services to end-customers will apply even if the EU member state has not yet introduced implementing legislation into its VAT Act by July (which is the case in the Czech Republic).
- Where supplies of goods valued up to EUR 150 to EU end-customers are made via an electronic interface (i.e., online marketplaces that facilitate the sale of goods), the obligation to report sales in the IOSS will be shifted to the electronic interface, that is, the electronic interface will be deemed to have made the sale and generally will be liable for the payment of VAT on the sale. If the marketplace is not registered with IOSS, the VAT due generally will be paid by the end-customer in the member state .
- The VAT exemption for low value goods (i.e., goods valued under EUR 22) imported into the EU from non-EU countries will be abolished. In practice, this means that a customs procedure will be required for all goods imported into the EU from third countries and VAT will have to be paid on each shipment. However, if the seller registers for the IOSS, it can charge VAT at the point of sale and then declare and pay the VAT due on the IOSS return.