EU-wide eCommerce VAT Reform, 1st July 2021
In an effort to simplify VAT reporting, increase VAT revenue for cross-border transactions, and mitigate unfair advantage from non-EU countries, the EU is introducing its new EU-wide VAT reforms on July 1st, 2021. These changes will form part of a phased switchover, allowing merchants to manage their transition to the new way of working.
This article is provided for your information only and does not constitute legal advice, tax advice or counsel. Please discuss your specific situation with your accountant to fully understand your obligations to Revenue.
All information is understood to be correct at time of writing.
As the UK is no longer a member state of the EU, the changes outlined below will not affect sales into the UK from an EU VAT registered company.
The current state of play
At present, any registered for VAT within the EU, but selling cross-border to other EU member states would need to be aware of the VAT threshold for each country into which they sell those goods or services. Should they exceed the threshold for any given state, they should take steps to ensure they are registered for VAT in that state, and commence both the collection and reporting of VAT to the Revenue Commission for that state to the value of all goods sold there. Across the EU member states, VAT thresholds vary considerably – as do the processes and paperwork required to register for VAT.
Any company registered outside of the EU but selling into the Union may be able to leverage a competitive advantage by virtue of their lack of requirement to register for, or make VAT contributions within the EU.
The changes incoming
Whilst there are four changes to EU VAT (listed below), we will be concentrating on just the first item. The three remaining changes are focused on Marketplace Selling Platform Providers (such as Amazon), and non-EU businesses importing goods to the EU.
- Introduction of the One Stop Shop (OSS)
- The treatment of Online Marketplaces and Platforms as deemed suppliers for certain transactions
- Introduction of a new Import One Stop Shop (IOSS)
- Introduction of Special Arrangements for certain imports of goods.
Introduction of the One Stop Shop (OSS) and removal of per-country VAT thresholds
The first major change is the removal of the per-country VAT thresholds. No longer will each country have its own self-determined VAT threshold for businesses, rather there is a single EU-wide threshold of €10,000 (exc. VAT). Any company making sales of a value greater than this across the entirety of the EU (but outside of their own VAT registered country), will be required to start making VAT contributions.
To facilitate this, the EU has mandated every country’s Revenue office provide access to a service known as a ‘One-Stop-Shop’. In Ireland, this can be accessed through https://ros.ie and it allows for a single EU VAT filing and payment to Irish Revenue.
Once received, Revenue will distribute the VAT to each EU member state, as per the filing, on a company’s behalf. No longer will companies need to register themselves for VAT in other EU member states. Rather everything can be handled through their own domestic Revenue office.
What you need to do now
So what action does this require of the retailer?
NB. For the purposes of these steps, we are assuming you are an Irish-based business that is not registered for VAT in any other EU member state and all goods or services sold cross-border within the EU are dispatched from one country, and delivered to another.
1. Check your cross-border, intra-EU sales volume
Importantly, you’re looking to see if your total annual sales value across the whole of the EU exceeds €10,000 (exc. VAT). This is not a per-country total. If you are registered in and dispatch your goods from an Irish location and you sell €5,000 worth of goods to Germany, €3,000 to France, and another €3,000 to Spain… you have exceeded the EU VAT threshold and need to start reporting for VAT in those countries.
If your EU sales DO NOT exceed the VAT threshold, you don’t need to do anything at this time – but do be sure to check regularly to ensure you’re aware if your situation changes.
If those sales DO exceed the threshold, you need to…
2. Register for the One-Stop-Shop (OSS)
Sign up for the One-Stop-Shop provided by Revenue on Revenue Online Services (https://ros.ie). This is the service you will use to notify Revenue of your EU VAT obligations and to make your payments to.
Once registered, you can…
3. Update your ecommerce store to start collecting the correct VAT
Importantly, you will need to have the correct VAT rate set for each country you sell the goods or services into. For example, a product with an intrinsic exc. VAT value of €100 might be sold to a buyer in Germany for €119 (German VAT is at 19%), or a buyer in Italy for €122 (Italian VAT being 22%).
The most appropriate method for determining the correct VAT rate in most circumstances is going to be the shipping address. The destination of the goods or services should be recorded, along with any VAT charged in each transaction.
This information is then used to…
4. Commence quarterly VAT filings and payments to Revenue
Through your OSS registration, you will be required to make quarterly reports on the value of all goods sold cross-border within the EU, along with any VAT collected. This can be submitted as a singular report to Revenue and they will distribute your VAT payment to the appropriate member states as per your report.
These reports are additional to, and absolutely separate from your domestic tax filings. You will not report them as part of your domestic VAT submissions, and you must not file any domestic VAT information to the OSS.
For more information or any help please contact us.