The new European Union (EU) VAT system for business-to-consumer (B2C) e-commerce sales comes into force on 1 July 2021. This package of changes comprises:
· A one-stop-shop for accounting for VAT on B2C services and intra-EU distance sales of goods
· An import one-stop-shop to pay import VAT on low-value imports from outside the EU
· Special VAT rules for goods sold to EU consumers via online marketplaces.
RSM sets out details of the EU’s new e-commerce regime and how it will affect UK suppliers selling to consumers in the EU.
The existing mini one-stop-shop (MOSS), which currently applies to telecoms, broadcasting and electronically supplied services (TBE services) will be replaced by the one-stop-shop (OSS).
From 1 July 2021, the new OSS will cover TBE services, as well as the distance selling of goods; that is goods which are dispatched by or on behalf of the supplier from one EU member state to a B2C customer in another member state. The current distance selling thresholds applied by individual member states (€35,000 or €100,000 depending on the country) will be replaced by a single threshold of €10,000, which will apply to the combined total of TBE services and distance sales made by an EU business to B2C customers throughout the EU. Non-EU vendors will be subject to a nil threshold.
In addition to TBE services and distance sales, the OSS can also be used to account for VAT on all B2C services with a place of supply in an EU member state where the service provider is not established, for example, for accommodation, admission to events, transport, immovable property services and valuation or work on goods.
The EU aims to ensure that VAT on distance sales and B2C services is charged in the member state of the EU consumer through the OSS (rather than by reference to the supplier's location), ending the requirement for EU-established suppliers to have multiple VAT registrations around the EU.
As they did with the MOSS, vendors using the OSS have the option of registering in one EU member state only and accounting for all EU supplies of OSS goods and services under a single quarterly VAT return. Businesses with an establishment in the EU will register in their home member state. Existing MOSS registrations will be migrated into the new OSS.
Use of the OSS is optional – the alternative is for the supplier to register for VAT in each EU member state where it makes supplies of these goods or services.
The EU’s ‘low-value import’ threshold, which currently allows shipments of goods worth €22 or less to be imported into the EU without customs duty or VAT, will be abolished so that, from 1 July 2021, import VAT is due on the importation of all goods into the EU. Instead of requiring this VAT to be paid as the goods enter its territory, the EU will introduce a new import one-stop-shop (IOSS) to facilitate the reporting and payment of import VAT on low-value goods that are dispatched by or on behalf of suppliers from outside the EU.
The IOSS can be used where the value of the consignment does not exceed €150, but it is not available for imports of goods liable to excise duties. Under the IOSS, the supplier charges VAT to the EU customer at the point of sale and reports and pays this VAT on a monthly IOSS return.
Both EU and non-EU established businesses that import low-value goods from outside the EU may register for and use IOSS. EU vendors register for IOSS in their home member state. Non-EU vendors that are established in a country which has a VAT mutual assistance agreement with the EU and supply their goods to the EU from that country may register for IOSS in a member state of their choice. Otherwise, a non-EU vendor must appoint, and register for VAT through, an EU intermediary in the country where that intermediary is established. That intermediary is then liable to fulfil the importer’s IOSS obligations and pay the VAT due on their behalf.
As with the OSS, the use of the IOSS is optional and importers may instead choose to pay import VAT via their customs entry when the goods cross the EU border. However, the IOSS looks set to be a valuable facilitation to simplify administration and logistics for importers of low-value goods; it is expected to enable faster clearance of goods through customs into the EU and vendors with an IOSS registration number may also save on transport charges from carriers. Use of the IOSS also removes the risk of double taxation where goods sent by express courier enter the EU through one member state and are transported to their final destination in another member state.
Finally, the EU will also introduce new rules for sales of goods through online marketplaces (OMPs), similar to those recently introduced in the UK. When goods are sold through an OMP to EU consumers, it is the OMP rather than the vendor that will be deemed, for VAT purposes, to have supplied them to the customer. Therefore, the OMP will be required to collect and pay the VAT on these sales.
The new e-commerce rules make major changes to the EU VAT system and teething problems are expected with the IT infrastructure, both for registration and customs clearance. While some countries’ registration portals are already open, a number of member states, including the Netherlands and Germany, have informed the EU that their online systems will not be fully ready for 1 July 2021.
For UK traders, the impact of the new rules will be different for traders who supply to consumers in the EU from Great Britain (GB), which is now outside the EU, and those that trade under the Northern Ireland protocol.
Traders in GB are now non-EU established businesses and, broadly speaking, have two options when selling goods to B2C customers in the EU. Should they be able to hold stock in an EU member state, they could register for the OSS in that country and operate the distance selling rules. If they prefer to ship stock to EU customers from the UK, they can register for the IOSS.
At the time of writing, there is uncertainty over whether GB traders meet the VAT mutual assistance agreement test when registering for the IOSS. While the UK did sign a mutual assistance agreement with the EU very recently, its impact on IOSS has yet to be fully clarified and some individual EU member states currently require GB registrants to appoint an intermediary. This creates extra costs and it may be difficult to find a representative that is ready to offer this brand new service.
As Northern Ireland effectively remains within the EU’s VAT system for cross-border movements of goods, it will be covered by the EU’s new rules for sales of goods through online marketplaces, distance selling of goods and the IOSS for goods imported from outside the EU. However, Northern Ireland is outside the EU for the purposes of supplies of services, so will be unaffected by the new rules on B2C supplies of services.
HMRC recently announced that it will create the necessary IT systems to allow businesses trading under the Northern Ireland Protocol to register for and operate the UK versions of the OSS and IOSS.
Businesses with supplies exceeding the €10,000 (£8,818) threshold that wish to use the UK’s OSS must be UK VAT registered and will require an XI indicator. The requirement to register will apply even if the business’s overall turnover is below the normal UK VAT registration threshold of £85,000.
HMRC warns that its IOSS portal may not be ready in time for the 1 July 2021 start date. It has promised further guidance on this point soon, along with more general guidance, information and regulations on the UK’s new IOSS and OSS regimes.