New EU VAT rules for online commerce: Sales from outside the EU

16 October 2019

In part one of this post, we looked at how EU e-commerce businesses can comply with VAT rules that will take effect in 2021. This post looks at how the changes will affect non-EU e-suppliers. It also examines the role of online marketplaces under the new rules.

The coming VAT changes: Online distance sales of non-EU goods

Removal of low value consignment relief

Non-EU businesses now benefit from an exemption known as low value consignment relief. Under this exemption, goods of up to 22 euros sent from outside the EU to private individuals in the EU may in certain circumstances be exempt from VAT.

The EU has concluded that the relief has led to unfair competition that favours non-EU based businesses. In order to avoid this distortion, the low value consignment relief will be removed in 2021, and import VAT will be due on each import, even those under 22 euros.

One Stop Shop option for non-EU businesses

As described in detail in part one of this post, the EU will offer a new online VAT portal called One Stop Shop (OSS).

The EU now operates a mini-One-Stop-Shop (MOSS) system. This digital online portal allows providers of telecommunications, broadcasting and electronically-rendered services to pay applicable VAT — in this case, VAT on all related sales to private EU customers — in only one member state and report that VAT through only one VAT return.

The OSS will extend the scope of the current MOSS to cover goods sent by non-EU online sellers, subject to certain conditions. One of these conditions is that the imported goods have a value under 150 euros. In addition, non-EU business suppliers must appoint an intermediary based in the EU, unless there is a mutual assistance agreement between the EU and the supplier’s country. The products covered by the OSS will not require payment of VAT at customs.

For example, if a US supplier sends goods to buyers in the Netherlands, Germany and Poland, the supplier may use the OSS to register in only one of these EU member states — there will be no need to register in all three countries. If the supplier registers in the Netherlands, for example, it will provide its OSS VAT number to Dutch customs authorities and be granted an exemption from import VAT charges at customs. Any VAT due on Dutch and other EU sales will be reported and paid through the OSS VAT return.

OSS VAT deduction

Non-EU suppliers will benefit from another feature of the OSS system in that they will be able to reclaim VAT paid on purchases in a particular member state through the OSS VAT return.

The OSS will be an alternative way of reclaiming VAT and will exist alongside the EU’s currently available 8th and 13th Directives, which also provide refund claim procedures.

Online marketplaces

The role of online marketplaces will also evolve under the new EU VAT rules. The VAT changes focus in part on electronic marketplaces, platforms and portals, such as those provided by Amazon and eBay. These large online marketplaces often facilitate the supply of goods in the EU from non-EU suppliers. Starting in 2021, the marketplaces will be liable for any VAT due on the sales of products through their platforms by non-EU companies to EU consumers. Consequently, the marketplaces will have to collect and pay the VAT on these sales.

Marketplaces will be able to use the new OSS system as a single portal for all their VAT obligations in the whole EU. If they do not use the portal, the standard rules will still apply and they will need to register in each EU country where they supply products.