We remind you that the VAT rules within the European Union are changing as of 1/7/21. They concern online purchases and more generally electronic commerce between businesses and consumers outside the European Union.
Prior to 7/1/2021, all goods imported into the EU valued at less than 22 Euros were exempt from VAT. But since July 1, all commercial goods imported into Europe are now subject to VAT and a formal customs declaration must be made.
As a shipper to the European Union or a recipient in the European Union, it is essential that you have a clear understanding of the changes that were made to the regulations on July 1, 2021.
The text was to enter into force on January 1, 2021 but given the health situation, it was postponed to July 1, 2021. This reform comes at a time when the growth of online sales is exploding + 8.5% between 2019-2020; but also after findings of significant amount of VAT fraud.
These tax and customs rules are evolving in order to guarantee fair competition between players in online sales and whether they are in the EU or outside the EU.
Until now, all traders in the EU (and in particular e-traders), have faced unfair competition from sellers located outside the EU. Indeed, the latter took full and unscrupulous profit from obsolete tax and customs systems and therefore escaped the payment of VAT.
According to the European Commission, the shortfall in online purchases by individuals amounts to around 5 billion euros. In view of the amount of transactions that escaped tax, the European Commission decided to change the rules. In France, annual online purchases by individuals represent around 450 million packages. So many packages that will have to be declared to customs and especially that will now be taxed.
VAT FROM THE 1ST EURO FOR PURCHASES OUTSIDE THE EU
The consequences for individuals
The thing that individuals should be aware of is that their online purchase is subject to their country’s VAT. There will be no impact on individuals who order from sites that sell their goods including VAT.
It is only if the sale on the site is invoiced without tax, therefore without VAT, that the carriers in charge of delivering the packages will be able to claim payment of customs duties, VAT as well as possible management fees.
In order to avoid any unpleasant surprises, it is the responsibility of the individual to verify that the site on which he places an order sells his products including VAT. Before proceeding to the payment step, make sure that the price displayed by the online seller does include VAT.
The consequences for professionals
These new measures concern all online sales of goods from EU and non-EU countries. The main changes to take into account are:
- Distance selling: For businesses, this translates into the simplification of the current VAT regime on distance sales of goods located in the EU at the time of their sale to consumers. A single threshold of € 10,000 is now applicable. Beyond this threshold, VAT is declared and paid in the Member State of consumption.
- The vast majority of online / electronic commerce is done through online platforms. Since July 1, these platforms (in some cases) become liable for VAT.
- To simplify their task and prevent these platforms and companies from having to register in each state where they make sales to pay VAT, the scope of one-stop-shops for VAT, set up in each Member State of the EU, is enlarged. This means that a company / platform registered with the Belgian counter will not need to register with the counters of other tax administrations in EU member countries – a single registration is sufficient to declare and pay VAT.
- In addition, distance sales of goods located outside the EU for less than € 22 are no longer exempt from VAT, except in the overseas departments and regions (DROM). This will make it possible to stop some who resorted to the splitting of parcels to evade VAT.
- Clearly, since July 1, all online sales of goods are taxable at VAT from the 1st euro. VAT can be collected by the seller or the platform directly from the buyer at the time of the online transaction thanks to the import one-stop shop or Import One-Stop Shop (IOSS, the latter simplifies up to 95% VAT obligations for sellers of goods and services to consumers across the EU) when they do not exceed € 150. If the value of the goods exceeds € 150, VAT must be declared to customs electronically. These formalities are carried out by carriers (DHL for example) acting on behalf of online buyers, which is why you may be charged additional fees that the carrier may apply to cover the costs of customs formalities.
THE CASE OF DROPSHIPPERS
Dropshipping is the trend right now. Dropshipping is selling products online without having stock, it is the manufacturer who takes care of sending the products to the end consumer (more details on our article on dropshipping here). The practices of dropshippers are highly criticized in Europe and more particularly in France with all the influencers who advertise them all day long on their social networks. France has implemented a new tax regime called “distance selling of imported goods” especially for dropshippers. This regime stipulates that even if the dropshipper does not intervene directly in the delivery of the goods, he is considered to have bought and sold the products himself and he will be obliged to declare his operations for tax purposes and to pay import VAT. . A measure put in place to regulate the dishonest practices of certain dropshipping sites which, in the event of a problem, did not hesitate to refer the end consumer to the supplier, often based outside the EU.
Note that the new rules came into effect on July 1, no matter what you buy and no matter the price you are now required to pay VAT and import fees on all packages delivered to you.
These new customs rules introduced by the European Union concern any online purchase made from an American, Chinese, Moroccan e-shop …
THE MERRITT SOLUTION
You are based outside the European Union and you carry out activities in the European Union, so your business operations are taxable in Europe.
Our firm offers you the possibility of developing your activities in the 28 countries of the European Union, without having to open a permanent establishment in one of the countries of the EU.
We assist you in the designation of a tax representative in order to activate one or more intra-community VAT numbers.
For more information and to make an appointment, please send an email to firstname.lastname@example.org or by phone to +971 4 422 1345.
We welcome you on Sunday to Thursday from 9am to 18pm in our offices in the heart of JLT.