The 2021 e-commerce VAT package has been saved
The 2021 e-commerce VAT package
VAT consequences for B2C sales in the EU and UK
On 1 July 2021, the e-commerce VAT package has been implemented in the EU due to which all B2C supplies of goods should in principle be taxed in the destination Member State. Similar VAT rules have been implemented in the UK on 1 January 2021 (along with the Brexit changes).
EU B2C e-commerce VAT rules
- For B2C supplies within the EU (intra-EU distance sales), the distance sales regime (whereunder a supplier was obliged to register for VAT when generating annual sales above EUR 35,000 or EUR 100,000, depending on the country of destination) are abolished. Instead, the supplier is obliged to immediately apply VAT in the final destination country, irrespective of the value of sales.
To support EU micro-businesses, an annual EUR 10 000 turnover threshold is applicable. Where the turnover of cross-border TBE services (i.e. telecommunication, broadcasting and electronically supplied services) and EU distance sales of goods (performed from the Member State of establishment to consumers in another Member State) is below that threshold, these sales remain taxed in the Member State where the supplier is established. This threshold does not apply to suppliers established outside the EU, or to those established in more than one EU Member State.
Applying VAT in the destination country in principle requires suppliers to apply for VAT registrations in every Member State to which they make B2C supplies. To mitigate this, VAT reporting on cross-border B2C supplies has been simplified through the use of different ‘One Stop Shop’ reporting (OSS) systems, allowing vendors to declare and pay VAT through a tax portal in one Member State (and thus avoiding VAT registrations in all Member States of destination). For intra-EU distance sales, this is done through the Union OSS, which is linked to the supplier’s VAT registration in the Member State of identification.
- For goods entering from outside the EU (so-called imported distance sales), the import VAT exemption for low value goods (intrinsic value below EUR 22) has ceased to exist. All goods entering the EU will be subject to EU VAT, either upon importation or upon supply. In some cases, VAT may be due on both transactions. The precise VAT treatment will depend on a wide range of parameters: where and how the goods are released for free circulation in the EU (i.e. Member State of importation), final destination Member State, the intrinsic value of parcels (below or above 150 EUR) and the supplier’s option to apply the Import OSS scheme. The Import OSS allows to declare and pay VAT on the supply of low value goods imported from outside the EU, as an alternative to paying import VAT upon customs clearance of those goods.
- A specific role is foreseen for online marketplaces that will, in certain situations, be liable for VAT remittance on B2C sales that they facilitate. A key feature of the new regime is that a taxable person facilitating a distance sale through the use of an electronic interface (e.g. marketplace or platform) is considered to be the supplier of goods to the B2C customer for VAT purposes, and will thus need to apply the e-commerce VAT rules applicable to the end consumer supply, instead of the underlying supplier. This applies to specific categories of B2C supplies: (i) imported distance sales of low value goods (i.e. intrinsic value not exceeding EUR 150 per consignment) and (ii) sales within the EU by non-EU suppliers.
UK e-commerce VAT rules
- As of 1 January 2021, supplies from the EU to Great Britain will – subject to specific requirements - qualify as VAT exempt exports from an EU point of view, regardless of whether the customer is a business or end consumer. For goods supplies, Northern Ireland remains for the moment part of the EU VAT territory, and B2C supplies to/from this jurisdiction are subject to the EU e-commerce VAT rules (cfr. supra).
- Making supplies from EU into Great Britain will however trigger obligations for the supplying business on the GB side. In fact, suppliers bringing goods into GB may need a UK VAT number, as they potentially have to account for UK VAT on imports and/or local supplies in GB. The UK VAT treatment depends on the consignments’ value (GBP 135 or less), the customer’s VAT status (i.e. UK VAT registered business or consumer), the goods’ location at the moment of supply (i.e. inside or outside GB) and the possible involvement of an online marketplace.
- For B2C sales from the EU to Great Britain of consignments that qualify for customs duty relief (with a value of GBP 135 or less), no UK VAT needs to be paid on such consignments at the border (customs declarations will still be required). However, UK VAT will need to be accounted for on the B2C sale of these goods, due to which the supplier will need to register for UK VAT and submit VAT returns in the UK.
- If an online marketplace is facilitating B2C supplies of imported consignments below or equal to GBP 135 in value, the marketplace will be deemed to be making the supply to the UK customer and will have the obligations described above, instead of the underlying supplier.
- For consignments imported into GB that are above GBP 135 in value, VAT will be payable at the border. UK VAT registered businesses (acting as importer of record as supplier or buyer) are allowed to use postponed VAT accounting (PVA) to account for import VAT. This means that the business can declare and recover import VAT in the same VAT return, subject to normal VAT recovery rules. This procedure requires no particular authorization from HMRC.