EU VAT and online sales: 10 common misconceptions clarified

On July 1, 2021, new value added tax (VAT) rules for online sales will come into force in the EU. Although much has been written about the new rules (‘VAT e-commerce package’) and the EU itself has produced many guidance documents, businesses still struggle to fully understand the legislation. relatively complex.

While the overall goals and principles of the VAT e-commerce package seem well understood, “the devil is in the details” and those details will ultimately determine whether a business is compliant or not.

This article clarifies 10 common misconceptions about the new EU VAT rules for online sales.

Misconception 1: New Rules Affect All Ecommerce Sellers

Although the VAT e-commerce package introduces far-reaching changes that EU and non-EU sellers should be aware of, its scope is limited to business-to-consumer (B2C) situations. The new rules will affect any seller who (1) sells goods and services to consumers in the EU; and (2) participate (even indirectly) in the transport of goods. If your customers are companies subject to VAT or take care of the transport of goods themselves, you do not have to worry about the new provisions.

Misconception 2: the one-stop shop is mandatory

The foundations of the e-commerce VAT package are three Single Window (OSS) regimes: the Union regime, the non-Union regime and the Import regime (IOSS).

The Union and non-Union regimes allow businesses to register in an EU country for the purpose of declaring VAT due in all EU countries where their customers are located.

The import regime allows businesses to import goods free of VAT: the seller charges VAT from the client country at the time of sale rather than paying import VAT when the goods enter the territory of the country. ‘EU.

All three patterns are optional. While they aim to simplify compliance, there are also good reasons not to use them. Since you cannot deduct input VAT on your OSS return, businesses with large expenses in other countries may prefer local registrations to an OSS system.

Misconception 3: the Union regime is reserved for EU companies

A common misconception is that EU businesses can use the Union regime, while the non-Union regime is designed for businesses established outside the EU.

This is true with regard to the provision of services. For the provision of services, non-EU companies use the non-Union regime and sellers registered in the EU register for the Union regime. However, non-EU companies can also register for the Union regime if they carry out intra-EU distance sales of goods (i.e. sales of goods from one EU country to another). These sales are not covered by the non-Union regime which applies exclusively to services.

Since each scheme covers different supplies, a non-EU company may end up enrolling in all three schemes: the Union scheme for supplies of goods made in the EU, the non-Union scheme for the provision of goods. services and the import regime for sales of goods imported from third countries.

Misconception 4: the one-stop shop is reserved for sales over 10,000 euros

In general, when an EU-based seller sells physical goods or digital services to consumers in other EU countries, they have to charge VAT from the customer’s country. To avoid VAT registrations in the countries where its customers are located, the seller can choose to use the Union regime.

However, there is a simplification for EU businesses whose sales of digital products and distance sales of goods to consumers in other EU countries do not exceed 10,000 euros ($ 12,100). These companies do not have to charge the VAT of their client country but can apply their local VAT.

This exception is subject to strict conditions:

  • the company is established in a single EU Member State;
  • he delivers goods only from his country of establishment;
  • its income from the sale of digital goods and services to consumers in other EU countries (and not its total sales) does not exceed 10,000 euros. The threshold is not counted separately for deliveries of digital goods and services, but the sum of all such deliveries must not exceed 10,000 euros for the threshold to apply.

The seller can choose not to respect the threshold and charge the VAT of the customer country, by registering directly in the customer’s country or for the OSS Union regime. If he decides to do so, he will be bound by that decision for two calendar years.

Misconception 5: non-EU companies do not need a tax representative

A non-EU business selling digital services to EU consumers can register for the non-EU regime directly with the tax authorities of an EU member state of their choice. A tax representative is not necessary. However, EU Member States may require non-European companies wishing to join the Union regime to appoint a representative.

A non-EU company wishing to use the import regime must appoint an intermediary for this purpose. An intermediary is an EU-based business that will be required to pay VAT and fulfill the VAT obligations provided for in the import regime in the name and on behalf of the person represented.

The obligation to appoint an intermediary is removed for non-EU sellers who are established in a country with which the EU has concluded a mutual assistance agreement for the recovery of VAT (Norway, United Kingdom) and who ship goods. goods from this country. However, as soon as such a seller starts to ship goods from other third countries, he must appoint an intermediary to use the import regime.

Misconception 6: One stop shop covers all sales of goods to EU consumers

The OSS Union regime only applies to sales of goods shipped from one EU country to another. This means that if a company sends goods to customers in its country, it has to declare them in its national VAT return. For example, a Belgian retailer selling goods from its Belgian warehouse to Belgian and Dutch consumers can use the Union OSS system for goods shipped to the Netherlands. However, its Belgian local sales must be declared in the Belgian VAT return.

There is only one situation in which local sales of goods are declared through the Union regime: a non-EU company sells goods located in the EU and this sale is facilitated by a market place in line.

Misconception 7: One Stop Shop Doesn’t Cover UK Sales

Although the UK is no longer part of the EU, EU VAT rules continue to apply to sales of goods between the EU and Northern Ireland. Northern Ireland has a dual VAT regime: it follows EU VAT rules for sales of goods but is treated as a non-EU country for sales of services. This means that sales of goods (but not services) to consumers in Northern Ireland can be reported through the OSS Union system.

Businesses established in Northern Ireland can enroll in the OSS Union program if they sell and ship goods from Northern Ireland to consumers in the EU. However, if they provide services or ship goods from other parts of the UK to the EU, they can enroll in the non-Union or the import regime, respectively.

Misconception 8: the import regime applies to goods below 150 euros

The import regime applies to sales of goods imported in batches whose intrinsic value does not exceed 150 euros. Thus, the value of the shipment and not the value of the goods must be less than 150 euros.

A “shipment” is defined as goods packaged together and shipped by the seller to a customer. When several orders from the same customer are packed and transported together, they form a single shipment. If a customer buys an item for 80 euros, the seller can apply the import regime because the value of the shipment is less than 150 euros. However, if the customer orders two copies of this article, the import regime cannot be applied, the value of the shipment being 160 euros.

Misconception 9: EU VAT number can be used for all special regimes

Each diagram requires the use of a different identification number. For the Union regime, the seller is identified with the same VAT number that he uses for all other intra-EU transactions. If a non-EU company registers for the Union scheme, it will be assigned a VAT number by the EU Member State of registration.

For the non-Union regime, a non-EU company will be assigned a special number in the format EUxxxyyyyyz. This number can only be used to declare supplies falling under the non-Union regime. Likewise, a company opting for the import regime will be assigned an IOSS VAT identification number in the IMxxxyyyyyz format.

Misconception 10: Tax invoices are mandatory in online sales

Although invoices are generally issued in e-commerce transactions, there is no legal obligation to invoice for sales covered by any of the special regimes. If the seller chooses to issue an invoice, the rules of the EU country where they are registered apply. However, if the seller makes intra-EU distance sales of goods but does not use the Union regime, he is required to issue an invoice in accordance with the rules of the customer’s country.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of the organizations with which the author is affiliated.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Aleksandra Bal is Head of Technology and Indirect Tax Operations at Stripe.