Changes to VAT on e-commerce

Throughout the European Union, as of this coming July 1, a new Value Added Tax (VAT) treatment will apply, which requires, among other things, self-employed workers who sell online to pay tax in the country of destination rather than in the country of origin, as has been the case until now.

The new VAT collection conditions seek to prevent the fraud that occurs in intra-Community transactions involving online sales. In addition, the legislation will make it possible to centralize procedures and optimize taxation in the region through clear rules for all members.

MOST SIGNIFICANT CHANGES FOR E-COMMERCE BUSINESSES

The new rules established by the European Commission entail changing certain tax practices for digital commerce. This represents a challenge for some e-commerce businesses. The main changes in the rules are as follows:

Application of the VAT of the country of destination.

Sales by businesses to private individuals will be taxed in the country of destination, that is, the country from which the purchase was made. This will help eliminate disparities in the application of VAT between countries.

Unification of sales thresholds

A single amount of €10,000 per year in transactions with any Member State is established. Accordingly, any business making sales equal to or exceeding that amount must charge VAT on its products at the rate of the country of destination. Below this threshold, the tax rate of the place of origin may continue to be applied.

Establishment of a one-stop shop

The one-stop shop is a web portal through which VAT is declared and paid electronically. The system will be responsible for forwarding the tax collected to the relevant Member State. This avoids having to register with the tax authorities of each country in which the sales threshold is reached, which makes it easier for e-commerce businesses to comply with the legislation.

Elimination of the VAT exemption on imports

As of July 2021, all imports from outside the EU will be subject to the tax of the country of destination, regardless of their value. However, the exemption from customs duties is maintained for imports that do not reach €150.

Tax management

Online marketplace platforms will become responsible for collecting VAT and paying it to the States in which they sell their products. It will make no difference whether they are the direct suppliers or act as intermediaries between other sellers and the final consumer. However, sales to the marketplace will be exempt from tax.

DISTANCE SALES OF IMPORTED GOODS

These are supplies of goods dispatched or transported by the supplier from a third country or territory to final consumers in a Member State. It is possible to opt for a special one-stop shop scheme in order to account for the VAT.

However, the application of the special scheme is limited to sales with an intrinsic value of less than €150. Up to that amount, the customs duty relief applies, so a full customs declaration is not required at the time of import.

To improve its application, a VAT exemption is allowed for imports of goods which, at the time of import, must be declared under the new special scheme (except products subject to excise duties).

The current exemption for imports of low-value goods, applicable up to €22, is abolished. Therefore, import VAT must be paid on imports of goods that are not covered by the special scheme.

VAT ON IMPORTS OF GOODS BELOW €150

For imports of goods with an intrinsic value not exceeding €150, a special arrangement for the declaration and payment of VAT with Customs may be applied where the option is taken not to use the special one-stop shop scheme.

The person liable for paying the VAT will be the recipient of the imported goods. However, whoever presents the goods to Customs for clearance will collect the tax from the recipient and will have to pay the VAT collected through a special declaration arrangement.

This arrangement covers imports made during the calendar month, which are taxed at the standard VAT rate, and declaration under the special arrangement becomes optional.

SUPPLIES OF GOODS FACILITATED BY DIGITAL INTERFACES

Another of the major changes is the new treatment of supplies of goods facilitated by digital interfaces. It affects platforms, portals, and online marketplaces that, in addition to acting as intermediaries, provide logistics and storage services to their customers.

The operator of the digital interface is deemed to have received and supplied in its own name imported goods sold at a distance in consignments with an intrinsic value of less than €150. The same applies where it facilitates supplies of goods to final consumers in the European Community (EC) coming from suppliers not established there.

The supply made by the supplier is exempt from VAT and will not limit the right of those making it to deduct input VAT. In this case, the e-commerce operator may opt for the special one-stop shop schemes to declare and pay the VAT on those transactions in respect of which it is the taxable person.