We would like to remind you that the VAT rules within the European Union will change as of 07/01/2021. They concern online purchases and, more generally, e-commerce between businesses and consumers outside the European Union.
Some key concepts
Before 07/01/2021, all goods imported into the European Union with a value not exceeding 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 sender to the European Union or a recipient in the European Union, it is essential that you have a clear understanding of the changes made to the regulations on July 1, 2021.
The rules were scheduled to enter into force on January 1, 2021, but due to the health situation, they were postponed until July 1, 2021.
This reform comes at a time when the growth of
online sales is exploding +8.5% between 2019-2020; but also following findings of significant VAT fraud.
These tax and customs rules are changing to ensure fair competition between online sales operators, whether they are in or outside the EU.
Until now, all EU traders, and particularly e-commerce businesses, faced unfair competition from sellers based outside the EU. Indeed, the latter took full and unscrupulous advantage of outdated tax and customs systems and therefore avoided paying VAT.
According to the European Commission, the shortfall in tax revenue from individuals’ online purchases amounts to approximately 5 billion euros. In view of the value of the transactions escaping taxation, the European Commission decided to change the rules.
In France, individuals’ annual online purchases represent approximately 450 million parcels. All these parcels will have to be declared to customs and, above all, will now be taxed.
VAT FROM THE VERY FIRST EURO FOR PURCHASES OUTSIDE THE EU
Consequences for individuals
The point individuals need to be aware of is that their online purchases are subject to the VAT of their country. There will be no impact on individuals who order from websites that sell their goods including VAT.
Only if the sale on the website is invoiced excluding tax, and therefore without VAT, may the carriers responsible for delivering the parcels request payment of customs duties, VAT, and possible handling fees.
To avoid any unpleasant surprises, it is the individual’s responsibility to check that the website where they place their order sells its products including VAT. Before proceeding to payment, make sure that the price displayed by the online seller includes VAT.
These new measures concern all online sales of goods originating from EU and non-EU countries. The main changes to take into account are as follows:
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Distance sales: For businesses, this means simplifying the current VAT regime for distance sales of goods located in the EU at the time they are sold to consumers. A single threshold of €10,000 now applies. Above this threshold, VAT is declared and paid in the Member State of consumption.
- The vast majority of online/electronic commerce takes place through online platforms. Since July 1, these platforms, in certain cases, become liable for VAT.
- To simplify matters for these platforms and businesses and avoid requiring them to register in every state where they make sales in order to pay VAT, the scope of the VAT one-stop shops established in each EU Member State has been expanded. This means that a business/platform registered with the Belgian one-stop shop will not need to register with the one-stop shops of the other tax administrations in EU Member States - a single registration is sufficient to declare and pay VAT.
- In addition, distance sales of goods located outside the EU worth less than €22 are no longer exempt from VAT, except in the overseas departments and regions (DROM). This will help stop certain parties from splitting parcels to avoid VAT.
- In short, since July 1, all online sales of goods have been subject to VAT from the very first euro. VAT may be collected by the seller or platform directly from the buyer at the time of the online transaction through the Import One-Stop Shop or IOSS, which simplifies VAT obligations for sellers of goods and services to consumers throughout the EU by up to 95%, when the value does not exceed €150. If the value of the goods exceeds €150, VAT must be declared electronically to customs. 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 of the moment.
Dropshipping means selling products online without holding them in stock; the manufacturer takes care of sending the products to the final consumer (more details in our article about dropshipping here).
Dropshippers’ practices are highly criticized in Europe and particularly in France, with all the influencers who promote them constantly on their social networks. France has introduced a new tax regime called “distance sales of imported goods,” specifically for dropshippers.
Under this regime, even if the dropshipper is not directly involved in delivering the goods, they are considered to have bought and sold the products themselves and are required to declare their transactions for tax purposes and pay import VAT.
This measure was introduced to regulate the dishonest practices of certain dropshipping websites that, in the event of a problem, did not hesitate to redirect the final consumer to the supplier, often based outside the EU.
Please note that the new rules entered into force on July 1. Regardless of what you buy and regardless of the price, you are now required to pay VAT and import fees on all parcels delivered to you.
These new customs rules introduced by the European Union concern any online purchase made from an American, Chinese, Moroccan, or other e-shop.
THE MERRITT SOLUTION
If you are based outside the European Union and conduct activities in the European Union, your business operations are taxable in Europe.
Our firm offers you the opportunity to develop your activities in the 28 countries of the European Union without having to establish a permanent establishment in one of the EU countries.
We assist you in appointing a tax representative in order to activate one or more intra-Community VAT numbers.
For more information and to schedule an appointment, please email
support@merritt.group or call +971 4 422 1345. We receive clients Sunday through Thursday from 9:00 a.m. to 6:00 p.m. at
our offices in the JLT center.
