What is VAT in the European Union (EU)?
Under the current EU rules:
Suppliers/sellers might be required to register in various Member States to collect EU VAT at various rates on their services/sales;
An optional declarative system (called the Mini One-Stop-Shop or "MOSS") allows suppliers of B2C digital services to declare the VAT due on their B2C digital supplies in a single quarterly VAT return, by registering in one EU Member State only;
Imported goods from non-EU countries with a value lower than €22 are VAT-exempt.
Why these new rules?
To facilitate EU cross-border trades;
To ensure fair competition for EU suppliers;
To combat VAT fraud.
An extension of the optional declarative system to both B2C suppliers of services and goods, avoiding multiple VAT registrations and reporting obligations in the EU (called the One-Stop-Shop or "OSS");
The abolition of the “distance sales threshold” and the creation of a unique and common threshold of EUR 10,000 throughout the EU up to which B2C EU cross-border supplies remain subject to the VAT rules of the Member State of dispatch, and above which supplies become subject to the VAT rules of the Member State of destination;
The abolition of the exemption for imported goods with a negligible value not exceeding €22;
A single report scheme covering sales of imported goods to EU consumers up to a value of €150 and for which a VAT exemption upon import will apply if the trader declares and pays the VAT at the time of the sale using this declarative system (called the Import One-Stop-Shop, or "IOSS");
The possibility to make Customs declarants (e.g. postal operators or courier firms) liable to collect import VAT from consumers via a monthly payment;
The shift of EU VAT liability to marketplaces when they facilitate the delivery of goods to the EU consumers.
Who is affected?
Various VAT rates currently apply to their services depending on their nature and the place of residence of the clients (e.g. transport services, catering services, leasing of means of transport, etc.).
As from 1 July 2021:
Businesses may consider using the One-Stop-Shop declarative system to lighten their reporting obligations;
The choice of the EU Member State where they could register for the One-Stop-Shop declarative system will depend on where they are established and whether they have one or more fixed establishments in the EU.
The new VAT rules will impact their reporting obligations and their margins, depending on the value of the goods, their origin and whether marketplaces facilitate the sales. With the introduction of a common and unique threshold of EUR 10,000 through the EU, the new rules will lead to the systematic application of the VAT of the EU Member State of final arrival of the goods.
If the sellers are small businesses selling less than €10,000 per annum of goods and services to consumers in other Member States, they will be able to charge domestic VAT and report their sales below this threshold in their regular domestic VAT return;
If they are a B2C sellers dispatching their goods from a single EU Member State, they will no longer be required to register for foreign VAT and complete multiple VAT filings in the EU Member States where they are selling their goods to: they could opt to complete and file a quarterly return under the One-Stop-Shop declarative system alongside their regular domestic VAT return;
If they are a non-EU sellers (including post-Brexit U.K.), they may also use the One-Stop-Shop declarative system by registering as a “non-Union” taxpayer with the tax authority of the EU Member States of their choice (except where they have already fixed establishments in the EU), they could then file quarterly returns under the One-Stop-Shop declarative system but would need to file a regular domestic VAT return in at least one EU Member State;
If they sell imported goods, note that the low-value consignment stock relief (for goods valued at €22 or below) will be abolished, but for consignments of €150 euros or below, (1) they will only be required to charge VAT at the time of the sale by using the Import One-Stop-Shop (i.e. no VAT will be due on import), or (2) they could elect to have the import VAT collected from the final customer by the Customs declarant (postal couriers);
If they are using online marketplaces to facilitate their transactions, they might de-register for VAT in certain EU Member States since the marketplace might become the deemed supplier of the goods, being responsible for collecting the VAT at the time of the sale.
Under certain circumstances, digital marketplaces will be responsible in collecting VAT on the following cross-border B2C sales of goods they facilitate, in order to combat VAT fraud:
Sales of goods imported from third countries by EU or non-EU sellers to EU consumers of consignments not exceeding €150;
Sales of goods being in the EU by non-EU sellers to EU consumers of any value;
Marketplaces will also be required to keep a record of sellers’ transactions for allowing VAT audits.
All shipments will need to be cleared through Customs (abolition of the VAT de-minimis rule for Customs declaration);
A super-reduced data set (“H7 dataset”) could be used in Customs declarations on import of parcels for goods up to €150 and subject to Customs duty relief;
The Customs declarant should be able to declare and pay import VAT electronically via a monthly declaration on behalf of the final consumer if the value of the goods is below €150.01 and when the customer is in the EU Member State of import.
What are the main implications for businesses?
Compliance costs savings by using a single VAT return and reducing the number of VAT registrations in the EU;
Possible appointment of an intermediary who will report the sales on behalf of the seller and account for the VAT.
Suppliers/sellers systems must recognise the VAT status of their clients, the countries of import/dispatch/arrival of the goods and capture the VAT rates applicable (there are more than 80 different EU VAT rates).
Contracts should be reviewed to ensure that VAT accounting responsibilities are clearly defined in the light of the new rules.
Cross-border B2C sales of goods might be subject to the VAT rate of the Member State of destination of the goods, whereas up until now, it might only be the case when national thresholds are exceeded (up to €100,000 per year). Either the sale price or the seller’s margin will vary;
The low consignment relief will be abolished, so VAT will be due on those sales at the rate applicable in all EU countries of sale. This will also impact the price and margin of the products;
Compliance costs may increase the cost of sale.
How can PwC help you?
PwC Luxembourg has experts in both VAT and Customs legislation and procedures, and we can assist foreign businesses in various ways:
Assess the impacts of the 2021 rules on your business model;
Analyse the business and legal implications of the different options available (VAT registrations in all EU Member States, registration under the OSS/IOSS declarative system mitigate the risk of non-compliance, assess the impact on the pricing of the products);
Implement any changes to systems and processes necessary to comply with the new rules;
Assist with VAT registration under the OSS/IOSS declarative system in Luxembourg or in any other EU Member State;
Assist with VAT reporting.
How the new rules could impact you
Due to Covid-19, the entry into force of these new rules has been postponed from 1st of January to 1st of July 2021. Some Member States already indicated to the EU commission that they would request another extension due to technical difficulties in implementing the new rules. Businesses should however be ready as soon as possible as these changes are consequent and can impact many departments and processes.
To get a brief overview of what the changes will mean for you, and what do you have to do to prepare for them, reply to our questionnaire!