New VAT rules coming in on 1 July 2021 will mean that VAT liabilities arise New VAT rules coming in on 1 July 2021 will mean that VAT liabilities arisefaster when trading with foreigners but VAT returns can be “rationalised”. Are you ready to roll with the changes?
For swathes of companies across the nation, the current economic trudge doesn’t especially leave them calling for changes to the VAT law. However, there has for some time been an item on the agenda to take a closer look at the VAT rules on “distance selling”, and so it is that they are now set to change at the mid-year point. The changes are intended to reduce the burdens and administrative costs associated with VAT collection that weigh on firms operating in the e-commerce sector and to level the competitive playing-field for firms both inside and external to the European Union. At present, retailers established in non-EU member states often charge VAT on sales within the EU, based on their registration in one of the 27. In essence, the new rules switch the place of charge for VAT from the vendor’s to the jurisdiction of the purchaser’s country (in all but a few cases). In principle, the same will apply to goods that originate in a third country and thus require to be imported into the Union territory.
Though the changes had been scheduled to come into force on 1 January 2021, their effective date was pushed back to 1 July instead. Belgium has already transposed the rules laid down by the EU into its national laws and, although we have our doubts whether each and every member state will be ready on their marks on the set date, vatable entities need to be keyed up so that, come 1 July this year, they apply the following new structures in the conduct of their business:
- Existing thresholds for distance selling to private individuals within the EU are done away with; new, simplified rules come in for intra-Community distance selling
“Distance sales” are sales of goods to B2C customers (private individuals and certain legal entities that are not under an obligation to report intra-Community acquisitions in their EU member state) that are shipped cross-border by or on behalf of the vendor.
Under the current rules, these intra-Community distance sales qualify to remain under the VAT regime of the vendor’s member state provided the vendor’s turnover in the purchaser’s member state remains under a given threshold (e.g., EUR 35,000 in Belgium).
The thresholds will go. If the vendor’s intra-Community sales within the context of distance selling (plus telecommunications and radio and tv signal distribution) exceed an annual de minimis threshold of EUR 10,000, and immediately upon that threshold being passed, vendors must bill VAT according to the rules of the B2C customer’s member state. The vendor has a “one-stop shop” option (OSS for short), which it can then choose for the purposes of reporting and paying its liability. It no longer needs local VAT numbers in each member state, other than that in which it is itself established and those where its call-off stocks are located. Vendors established outside the EU can also avail themselves of the OSS option, which, although not compulsory as such, is binding once a vendor has chosen to go that route in fulfilling its VAT obligations; it is therefore still technically feasible to continue with using local VAT registrations and local VAT returns.
- Simplified rules to cover distance sales of goods originating outside the EU
Aside from the change to the intra-Community distance sales rules, a new system will apply to distance sales of goods sourced from third countries, thus necessitating customs clearance before they are delivered to their B2C customer within the Union.
At the present, the clearance procedure needing to be followed is the standard one, where either: (i) the vendor clears customs under its own name and then effects an intra-Community distance sale, for which needs it to have local VAT registrations to pay both the import VAT and the VAT due in the customer’s jurisdiction, or (ii) the vendor stays out of the clearance picture and the carrier recovers the import VAT (and customs duty) from the customer.
From 1 July 2021 and for goods of a value less than EUR 150, importation for the purpose of an onward sale to a B2C customer can be handled under one of two simplified VAT schemes:
• Using a one-stop import shop (IOSS)
Distance sales attract the VAT of the EU member state in which the shipment reaches its destination, which is ordinarily that where the B2C customer is situated. That VAT is reported and paid using an IOSS. The importation of each shipment is VAT-exempt and the customs clearance procedures are simplified, but the vendor does have to notify its IOSS reference number to the customs office at the border and therefore has to pre-register in the IOSS;
• Through the offices of a designated agent
Provided the place where each shipment crosses into the Union is the EU member state in which the ultimate purchaser also has their place of establishment, a second simplification becomes available as well. An agent is appointed (such as a courier service or the post office) to effect the clearance procedures and pay the VAT on the purchaser’s behalf; in that case, there is no need for the vendor itself to be issued with a local VAT number.
Bear in mind that, even where these simplifications offer a welcome solution, the classic customs clearance procedure (the only solution that’s even been available to date) still remains a valid option and will of course trigger back in as a compulsory route if any of the stated simplification requirements are not met (such as the goods’ intrinsic value exceeding the EUR 150 simplification limit).
- VAT exemption abolished on imports under EUR 22 in value
Besides the simplified import procedures described above being introduced on goods valued EUR 150 or less, there will no longer be any exemption for shipments valued at under EUR 22. The aim is to staunch deemed unfair competitive practices within the Union by operators established elsewhere.
- New VAT duties incumbent on those distance selling via a “marketplace”
There are also going to be far-reaching changes for “marketplaces” and vendors that use them as a business model (at least as far as online sales are concerned):
- for sales of goods in a value of EUR 150 or less originating from a third (non- EU) country, thus requiring them to clear customs (for which no regard is paid to the vendor’s place of establishment); and
- where the vendor is not established within the EU (in which case, no regard is had either to the value of the goods or whether they originate from a store located inside or outside the EU).
For both these cases, a legal fiction applies to operators of marketplaces functioning via an “electronic interface” that deems them to have themselves received the shipments from vendors and have then sold them on to the ultimate customer. The fiction is not affected by whether the electronic interface is located within the EU or elsewhere and, consequently, operators will be liable to pay the relevant VAT charge in the customer’s jurisdiction, for which they may of course make recourse to an OSS/IOSS arrangement, leaving them the task of only having to submit returns in a single member state.
- Expansion of the rules to cover services (MOSS)
The “mini OSS”, or MOSS, has already been up and running since 2015, dealing with telecommunications, radio and tv signal distribution, and electronic services (all of which are for the most part automated and provided with little or no human intervention). VAT falls to be charged on them, nonetheless, in the member state of residence of the B2C client. This local VAT charge can be settled without any need for local VAT registration or periodic returns using the current MOSS arrangements. In future, it will be possible to use the OSS system to report vatable income in respect of other B2C services located in the B2C client’s EU member state in line with the VAT location rules, such as the location of means of transport, services rendered relative to land and buildings, hospitality event services and such like.
Since 1 April 2021, vatable entities have been able to complete registration formalities for the IOSS and the OSS within the relevant member state, should they wish to avail themselves of the facility. It is nonetheless worthy of note that the new “simplifications” can entail new duties and additional accounting complexity: many firms which use ERP software, just to cite one example, will have to upgrade it to make sure the place of delivery is correctly stated, that the local VAT rate is correctly given and that account is taken of switches in currency.
Businesses using the OSS to report their distance sales and (electronically supplied) services will no longer need to adhere to a catalogue of varying invoice requirements from one customer’s member state to another’s. In their place, however, there now come the member states’ varying identification rules.
ALL IN ALL …
Whether or not this bundle of measures taken all together will actually result in the hoped-for simplifications remains to be seen once the system goes operational and the first pioneers making the switch have had an opportunity to report back on the experience. The commonest dilemma for businesses will be knowing what they need to report in their periodic returns and what goes into their IOSS and OSS returns, , especially where they hold stocks of merchandise in a number of countries (through their logistics partners). And, of course, one other major uncertainty remains, being how far each and every EU member state will be ready to process the machinery now being set in place once the starter gun goes off on 1 July.
Do not hesitate, contact us!