VAT on e-commerce is going to change… in 2021
Yes, it’s finally going to happen. The EC recently published its proposal to modernise VAT for cross-border e-commerce. Here’s the timeline:
- A set of thresholds (EUR 10 000 and EUR 100 000) for cross-border supplies of electronic services will be introduced to help microbusinesses and SMEs. This means in practice that only businesses with cross border sales of more than EUR 100 000 will be subject to the standard rules.
- Building on the success of the mini One Stop Shop for electronic services (MOSS), this concept will be extended for online supplies of goods and to all cross-border services to end consumers.
- The intra-EU distance sales regime and the small consignment exemption on imports will be removed in line with the commitment to apply the destination system for VAT.
- The new One-Stop Shop (OSS) will also be extended to imports. Unlike today, VAT can be collected at the point of sale to EU customers by sellers or market places. Non-EU sellers will then declare the VAT using the OSS. These goods will then benefit from a fast-track customs mechanism.
- Where the OSS is not used, a second simplification mechanism will be available to imports–VAT will be collected from customers on importation and a simple monthly declaration to customs will be transmitted by the transporter.
The proposal is intended to address three main problems.
- In each Member State where it has customers, a business incurs average VAT compliance costs of EUR 8 000 annually. These costs are particularly prohibitive for SMEs. The proposal will reduce this cost by 95% (resulting in overall annual savings for business of EUR 2.3 billion).
- The VAT exemption for the importation of small consignments as well as high rates of non-compliance means that EU sellers (both online and traditional businesses) are at a severe disadvantage to non-EU sellers. It is estimated that as much as EUR 25 billion in trade (25% of total cross-border B2C sales of goods) is non-compliant.
- Member States are losing at least EUR 5 billion annually in VAT revenues. This includes EUR 1 billion VAT foregone due to the VAT exemption and EUR 4 billion from non-compliance. This is estimated to rise to EUR 7 billion by 2021.
Who will benefit from this proposal?
- Businesses will gain through a substantial reduction in cross-border VAT compliance costs. This will facilitate greater cross-border trade.
- EU Businesses will no longer have to compete against non-EU businesses that are not charging VAT.
- Member States will gain through an increase in VAT revenues of EUR 7 billion annually.
More info can be found here