As the dust settles on Brexit, businesses will need to brace themselves for another wave of change on the VAT front – the implementation of the VAT e-commerce package.
Broadly, these new rules will see the end of the current EU "distance selling" rules and the introduction of the one stop shop (OSS) for cross-border sales made in the EU. Under the current EU distance selling rules, an EU supplier is required to charge and account for domestic VAT (i.e. VAT in the country where it is established) on a cross-border supply of goods to non-business customers (i.e. private individuals) until it breaches a certain threshold in which case it is required to register and charge VAT in the country where its customer is located. The threshold varies from country to country and is set at either €35,000 or €100,000. As such, an online supplier selling goods to customers all around the EU is required to keep track of the threshold in each EU country and once exceeded is required to register and account for VAT on supplies made to customers in that particular country.
From 1 July 2021, these individual thresholds will be abolished and replaced with a single EU wide threshold of €10,000. Suppliers that breach this threshold will still be required to register and account for VAT in the country where the customer is based, but rather than having to separately register for VAT in each individual country, it will be possible for a supplier to use the OSS to make a single VAT return to report VAT charged on the sales made across the different EU countries. The OSS will be an extension of the mini one stop shop (MOSS) which operates in a similar manner and currently allows suppliers of electronically supplied services to register and declare VAT on sales made in different EU countries through a single VAT return.
Since Brexit, UK suppliers are no longer bound by the EU distance selling rules. Instead, goods supplied to EU customers need to be imported into the relevant EU country with EU VAT being paid at the border. There is currently a low value consignment relief (LVCR) in relation to imports with a value of €22 or less which means that no VAT is payable when these goods are imported into the EU. This relief will be abolished from 1 July 2021, and all imports will attract EU VAT. However, where the value of the goods sold is less than €150, it will be possible for the suppliers to use the import one stop shop (IOSS), another EU simplification measure, to declare the EU VAT due on such goods at the time of sale rather than at the point of import. The rules relating to low value consignments mirror those introduced in the UK post Brexit, whereby UK VAT on the sale of goods imported into the UK with a value not exceeding £135 is charged by the supplier at the point of sale and accounted by the latter through its UK VAT return, rather than paid as import VAT at the border.
In respect of the sale of goods that are over €150, the existing rules will continue to apply. Broadly, the goods will need to be imported into the relevant EU country and where the non-EU supplier keeps a stock of goods and uses this to make domestic supply of the goods, it may be required to register and account for VAT in the country where these sales are made.
The final change being brought in from 1 July 2021 is that online marketplaces and/or platforms facilitating supplies of goods will be deemed for VAT purposes to have received and supplied the goods themselves and will therefore be responsible for collecting and paying the VAT due on these supplies.
Whilst these changes are aimed at simplifying the current rules and streamlining the process, it does create additional complexities for businesses which will need to get to grips with the new rules and understand how they will operate. The OSS and IOSS should in theory make the VAT compliance process simpler but will still require businesses to track supplies made across the EU to ensure that the correct rate of VAT is charged on the goods – something that suppliers trading below the current thresholds or benefiting from the LVCR may not necessarily have had to deal with previously, together with the additional costs that will be incurred in making returns under the OSS and IOSS.
These rules were originally meant to come into force on 1 January 2021 but were delayed due to the Covid-19 pandemic. A request for the introduction to be further delayed was made by certain member states recently but this was blocked, and preparations are therefore underway to meet the 1 July deadline.