What small businesses need to know about the new EU VAT rules



Introduction

The European Union has introduced new rules for VAT e-commerce in order to level the playing field and reduce unfair competition from outside territories like Hong Kong and Mainland China.

Starting mid-2021, this exemption will no longer be available as it was before when goods imported into Europe had their value below €22, now they must meet certain conditions which can include being manufactured locally or having been sold domestically at least once, otherwise, there would simply not have any taxation applied upon sale.

The new VAT rules for e-commerce platforms and marketplaces will increase the obligations when facilitating goods supply online. These apply to distance sales imported from third countries or territories, with an intrinsic value not exceeding €150 per transaction, this includes commercial goods but doesn’t cover transport costs unless they're included in invoice prices. Other taxes & charges may be applied by customs authorities from relevant documents.



 

​​Two New Schemes

The new rules introduce two schemes to customs clearance for B2C internet or distance sales from third countries and territories that are outside the European Union.


1.

The new rules mean that all imported goods, including those below €22 in value or not motors and machinery will be taxed. This means big changes for businesses operating internationally but it also signals an end to unfair competitive advantage given by some countries that don't charge VAT on their exports.

The European Union (EU) has announced major reforms which aim at harmonizing trademark laws across its member states… The purpose is to reduce penalties against companies doing business abroad due to discrimination because they're from outside the region.


2.

The new rules for collecting VAT on imports will improve the efficiency of tax collection as well. Two types of arrangements have been provided in order to make this possible: "IOSS" and “special arrangements". It should be noted that these schemes cannot apply if you plan on importing alcohol or tobacco products because they require an additional level inspection at customs; there's also no need to put through those checks prior to arriving in Europe either (which is what would happen under most circumstances). From July 2021 onwards though everything entering EU territory must go thru great lengths before being allowed entry unless it is exempt.


The IOSS

The European Union (EU) has a new VAT Directive that is designed to simplify trade in goods and services across member states. Suppliers will now be able to fulfill all of their taxpaying obligations through one centralized system, known as the "IOSS."

This means there's no need for them or intermediaries appointed by consumers at point-of-sale like before when they would declare payments made each month on behalf of themselves only. The use of the IOSS is not mandatory, but it can be beneficial. VAT-free imports into Europe are available for sellers who provide their goods directly or through marketplaces/platforms that facilitate these transactions on behalf of European consumers.

The European Union has rules for VAT and it's important that member states keep track of how much tax enters their borders. When a shipment comes into an importing country with no IOSS numbers on file, customs will be required by law to get it checked out so they can report this information monthly through surveillance systems like those run from Brussels or Luxembourg City where all data collected goes towards creating comprehensive overviews about what’s happening within each territory under review.


The IOSS is an innovative way to combat tax evasion by providing accurate information on imports and exports. The monthly reports are submitted directly from Surveillance, which helps avoid errors in claiming VAT-free purchases or sales within one country but not others. This means that the authorities will be able to use them for control purposes through matching values provided here with those declared on returns filed under domestically assigned identification numbers (VAT).



US, Hong Kong, mainland China sellers who sell their products on online marketplaces like Amazon, eBay, and Media Markt should know that they will be affected by the new VAT rules for e-commerce goods. The law requires these companies to collect tax from customers located in European Union member countries when supplies are made there under conditions similar to that established between sellers.

From 1 July 2021, online marketplaces will be required to calculate and collect VAT on low-value B2C imports into the European Union from non-EU-based companies that do not have a warehouse in any member state.


This is the situation where consumers order goods through any online marketplace, and those items are delivered from inventory stored outside of Europe. The consignment valued at under €150 qualifies for IOSS treatment, meaning that instead of paying VAT direct when they're sent over here or receiving payment in advance before shipping it back out again, vendors only need to remit their taxes on top once the sale has been completed (where applicable).


Special Arrangements

The second scheme is intended primarily for economic operators who conduct business with customs authorities and declare the low-value goods (on behalf of consumers), such as postal services providers or freight forwarders. Under this system, VAT becomes due if it was effectively collected from an importer, which means they have to pay up. Otherwise, refund procedures might become too burdensome

In order to avoid these complications, we’re going ahead with a new type, IOSS: ie high value items over £1000


The economic operators are responsible for paying VAT amounts collected from individual consignees during a given month. They must do this by the deadline applicable to customs duty payments in accordance with Union law, which is usually before it's due so as not to give someone else an opportunity at Profit!


The European Union has introduced a new form of customs declaration for free circulation goods in consignments not exceeding €150 (so-called super-reduced dataset).


Together with the development of e-commerce, many companies are now required to adapt their IT systems in order for them to allow low-value shipments.

The European Union has created new guidance for Member States and Trade on the VAT e-commerce package. Sellers in Hong Kong should carefully examine this document to learn more about how they are affected by these changes from old rules when selling goods online as low-value items.


Conclusion

This article was focused on B2C sales and we will give you more input into another post about the best way to import in Europe for your B2B client when you are based locally and when you are not


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