From 1st July 2021 the VAT rules on business to customer (B2C) e-commerce sales have changed.
The changes, referred to as the ‘EU VAT E-commerce Package,’ aim to reduce barriers for e-commerce businesses selling across borders to end customers within the European Union, and can be used by businesses worldwide including those based in the UK. It also aims to ensure that VAT is paid correctly to the member state in which the supply takes place.
The package comprises two main components, The One Stop Shop (OSS) and the Import One Stop Shop (IOSS), with the main changes affecting non-EU businesses selling to customers within the EU as follows:
The previous threshold for distance sales of goods into EU member states, which was between 35,000 and 100,00 Euros depending on the member state, has been abolished and replaced by a single EU wide threshold of 10,000 Euros. If your sales exceed this threshold, you will be liable for VAT in the member state where your customers are located. To remove the administrative burden of having to register for VAT in multiple countries, businesses can opt to register for the One Stop Shop (OSS) to declare and pay VAT due in member states.
The OSS allows businesses to register for VAT electronically in a single EU member state for all intra-EU distance sales of goods and for B2C supplies of services taking place in the EU by non-EU online sellers. They are then able to declare and pay VAT due on all supplies of goods and services in a single quarterly Return.
The VAT exemption on imported goods with a value not exceeding 22 Euros has been removed, meaning that all goods imported to the EU will be subject to VAT at the local rate of the member state where the customer resides. Selling to customers in multiple EU countries could therefore become far more complicated and incur significant additional administrative time. Businesses can instead opt to use the Import One Stop Shop (IOSS) to simplify the VAT process and provide clarity to consumers as to the final cost. Rather than import VAT being collected when the goods enter the EU, the business would register within one EU country and submit a single monthly IOSS VAT Return
This only applies to goods and can be used only where the total value of goods in a consignment is 150 Euros or lower and where they are not subject to excise duty.
If IOSS is not used, then the seller would continue to Zero rate the supply for UK VAT purposes, but VAT would then be applied upon import.
You will need to ensure that your accounting system allows VAT to be charged at the correct rate applicable.