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VAT: New rules for e-commerce on July in the EU

These new rules will concern sellers and online marketplaces/platforms both inside and outside the EU, postal operators and express mail services, customs and tax administrations and consumers. Explanation.

New rules on value added tax (VAT) for online commerce will come into force this week, as part of efforts to ensure a more level playing field for all businesses, simplify cross-border e-commerce and increase transparency for EU consumers about prices and choice.

The EU VAT system was last updated in 1993 and has failed to keep pace with the expansion of cross-border e-commerce that has transformed the retail sector in recent years. The coronavirus pandemic has also accelerated the growth of online retailing and has re-emphasized the need for reform to ensure that VAT due on online sales accrues to the consumer's country. The new rules also address the need to simplify life for both consumers and economic actors.

The new rules will affect sellers and online marketplaces/platforms both inside and outside the EU, postal operators and express couriers, customs and tax administrations and consumers.

What is changing?

From July 1, 2021, there will be a number of changes to the way VAT is collected on online sales, regardless of whether consumers are purchasing from economic operators established in the EU or outside its territory:

- Under the current system, goods worth less than €22 imported into the EU by non-EU businesses are exempt from VAT. As of Thursday, this exemption is lifted so that VAT is charged on all goods entering the EU, just like goods sold by EU businesses.

"It appears from some studies and experience that this exemption is being abused, by unscrupulous sellers established in third countries who affix fraudulent labels to shipments of goods (smartphones, for example) in order to benefit from the exemption," explains the European Commission. This loophole allows these companies to undercut their European competitors on price. According to estimates, fraud costs EU tax authorities €7 billion per year, which creates a heavier tax burden for other taxpayers.

- Currently, online sellers are obliged to register for VAT in each Member State in which they have a turnover above a certain overall threshold, which differs between countries. From July 1, these different thresholds will be replaced by a common EU threshold of €10,000, above which VAT will have to be paid in the Member State where the goods are delivered.

In order to simplify the life of these businesses and to facilitate their sales in other Member States, online sellers can now register in an electronic portal called the "one-stop shop", where they can fulfill all their VAT obligations related to sales they make throughout the EU. This €10,000 threshold already applies to electronic services sold online as of 2019.

Instead of struggling with complicated procedures in other countries, they can register in their own member state and in their own language. Once registered, the online retailer can notify and pay VAT in the one-stop shop for all of their EU sales through a quarterly return. The one-stop shop will take care of forwarding the VAT to the relevant Member State.

Similarly, the introduction of a one-stop shop for imports for third country sellers will allow them to easily register for VAT in the EU and ensure that the correct amount of VAT is paid to the Member State where the tax is ultimately due. For consumers, this translates into much greater transparency: when you make purchases from a third-country vendor or platform, which is registered in the one-stop shop, the VAT should be included in the price you pay to the vendor. In other words, no more calls from customs or courier services asking for a surcharge when the goods arrive in your home country, as the VAT will have already been paid.

Many companies outside the EU have already registered for the One-Stop Shop for imports, including the major global online marketplaces.

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