From Thursday 1st July, the EU will be overhauling ecommerce VAT regimes, fundamentally changing how retailers account for VAT and who accounts for it. Since UK exited the EU in January 2021, this new rule will also apply to British sellers.
Håkan Thyr, Chief Revenue Office, Fruugo, gives the following practical advice and guidance on how UK ecommerce firms selling to the EU can prepare to ensure a smooth switch over: “The new rules are intended to simplify the process and reduce fraud, but have also created some confusion. A fundamental change is that the “place of supply” will change – from 1st July, the EU country where the end customer is located will be where the VAT value is established. A key preparation is to look at the geography of all of your sales and map out all the possible fulfilment routes used, which help you make the right decisions as the new rules are enforced.
“The new VAT rules will apply to imports of “low value” consignments below €150. The current €22 VAT exemption threshold is removed. Consignments over €150 have different rules. The intrinsic value of a product refers to the product cost and excludes things like shipping VAT and insurance. It’s important to note that the new rules apply on a consignment level. If you ship two £80 products in the same consignment, that consignment is over the €150 threshold.
“To help non-EU sellers report VAT, the EU has introduced the International One Stop Shop (IOSS) where sellers can report VAT for all EU countries in a single place. Registering with the IOSS is not completely straight forward as you will need to appoint a fiscal representative in the EU to apply on your behalf. Most tax consultancies will be able to offer you that service. By registering for the IOSS, you will receive your IOSS number that you will need to use when fulfilling direct orders from EU shoppers.
“A key part of the VAT reform is that online marketplaces are made responsible for collecting and remitting VAT for consignments under €150 that originate outside the EU. If selling through marketplaces, you must ensure to understand the solutions each marketplace is offering, in order to get the VAT accounting right. As a marketplace seller, you need to provide the marketplace’s IOSS number with each consignment in order for the consignment to cross the EU border without complications. Without an IOSS number, the customer may end up having to pay VAT again. Getting the right IOSS number onto each consignment can prove to be complicated if you are selling on multiple EU marketplaces, so make sure to work with your logistics partner to adapt your process to the new regulations.”
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