Are You Prepared for the EU VAT Changes on the Horizon?

Author
Tracy Ruff
International Trade Centre Manager
23rd February 2021

There have been some big changes with VAT since the UK left the EU VAT area and in addition from July 2021 there are some major EU VAT changes on the horizon.  

As of 1st January 2021, the UK has left the EU and the EU VAT regime resulting in a number of changes to VAT.  In addition, from July 2021 there are further changes planned in EU VAT regulations that will impact on UK exporters.

This is a brief overview of these changes – for specific advice, companies are advised to speak with their accountant or contact a VAT specialist.

Business to Business (B2B)

The key change for business to Business (B2B) exporters is that sales of goods to the EU is now treated as “exports” from the UK and invoices will be “zero-rated” for VAT purposes. Business customers who are registered for VAT in the EU will account for their equivalent of VAT on the import of the goods from the UK, using the reverse charge mechanism.  

UK exporters will need to keep evidence (proof of export) that the goods have left the UK to satisfy HMRC requirements. More info here

N.B UK exporters are advised to avoid selling on an ExWorks basis, as the buyer is not obliged to provide the seller with any proof of export and any export declaration will be made in the buyer’s name, so there will be insufficient “proof of export”.)

Business to Consumer (B2C) / Sales to businesses that are not registered for VAT 

The EU distance selling rules no longer apply to UK Companies.  These rules enabled UK exporters to charge UK VAT on their B2C sales without registering for VAT in the EU until their sales hit a threshold of either €35,000 or €100,000, depending on the country)

From 1st January 2021, exports to EU B2C customers are also outside the scope of UK VAT and invoices should be zero-rated. However, import VAT will be payable in the EU cou

Parcel value
EU Import VAT
EU Duty

€22

Exempt from import VAT under Low Value Consignment Relief (LVCR)

NO DUTY

€22 - €150

Import VAT at relevant rate in each Member State

NO DUTY

> €150

Import VAT at relevant rate in each Member State

DUTY

After 1st July 2021, the EU has signalled that it will introduce new regulations around VAT and eCommerce.  Some commentators are of the opinion that these new regulations may be postponed until January 2022.  One of the changes will be that Low Value Consignment Relief (LVCR) will be abolished

Parcel value
EU Import VAT
EU Duty

From €0

Import VAT at relevant rate in each Member State

NO DUTY

> €150

Import VAT at relevant rate in each Member State

DUTY

Options for UK exporters selling B2C

  • EU customers pay import VAT when the goods arrive – import VAT will be collected from customers by the courier, postal operator (which is not a very good customer experience).
  • UK exporters could register for VAT in each the EU country where they make B2C supplies, which may also involve appointing a “fiscal representative” in that country.
  • Some parcel operators may offer a “Deliver Duty Paid” Service paying the import VAT and any duties and billing back to the exporter – although this is likely to be an expensive option.
  • From July 2021, exporters of consignments valued below €150 could use the One Stop Shop (OSS)

One Stop Shop (OSS) 

The EU will be introducing the One Stop Shop (OSS) from 1st July 2021.  It will be an optional scheme for the distance selling of goods to EU consumers (B2C) and businesses that are not registered for VAT.  It is an extension of the existing MOSS service (see below).

OSS will only apply to goods where the CIF Value (goods + insurance and freight) is less than €150.  

OSS will be available to both EU and third-country suppliers.  The UK exporter will be required to appoint an “OSS intermediary” - with a similar role to a fiscal representative - in a single member state known as the "member state of identification".

The UK exporter will charge VAT at the point of sale.  The rate used will be the rate applicable in the 

Customer’s country.  This is likely to mean that software will be required to determine the real time VAT rate.  An invoice will be produced to provide evidence that the local VAT and duties have been paid. The UK exporter will declare and pay over the VAT via the OSS intermediary to the appropriate member state(s) via a ‘one-stop-shop’ (OSS) in a single return. The seller will have an OSS number to identify them, so that Customs authorities in the EU can check that the VAT is subsequently paid.OSS avoids the need to have multiple VAT registrations in the EU, but there are some circumstances where it will not be appropriate or necessary.

  • Companies that hold stock in an EU country will not benefit from OSS, as this would not be deemed as Distance Selling.  Where stocks that are held in one EU country (e.g France) and then sold across the border (for example, into Italy) then the foreign (French) VAT needs to be charged on the sale.
  • Companies that want to recover input VAT on purchases incurred may not wish to use OSS.  Instead they should use a non-resident VAT registration instead to recover VAT.  Larger eCommerce companies are unlikely to use OSS for this reason, however it is likely to be a good option for small companies.
  • Where the value of Distance Sales exceeds €150, the UK exporter must treat these sales as exports and Import VAT is payable in the normal way.
  • Goods subject to excise duties will not be eligible for the OSS and will be subject to the normal rules for third-country imports, as at present, and a full customs declaration will be required.

As the OSS scheme is not yet in operation, some of these details may change.  Many of the specialist VAT companies provide guidance and webinars on the subject.

https://www.accordancevat.com/e-commerce-vat-package-oss-2021/

https://www.grantthornton.co.uk/insights/distance-selling-after-brexit/

https://www.avalara.com/vatlive/en/vat-news/uk-exits-eu--leaves-vat-regi...

Digital Services

Exporters of digital supplies, such as consumer software, digital downloads, eBooks can use the 

the VAT Mini-One-Stop shop (MOSS) to report sales of digital services to EU consumers and pay over EU VAT.

UK Companies will have to register under the non-Union MOSS scheme.  Since 1st January 2021, UK companies can no longer make their returns via HMRC

https://www.gov.uk/government/collections/vat-moss-vat-on-sales-of-digit...

https://www.avalara.com/vatlive/en/vat-news/brexit---selling-digital-goo...

eCommerce Marketplaces 

Under the new EU VAT Ecommerce Regulations, due to be I traduced in July 2021, eMarketplaces will have full responsibility to collect and remit VAT on all sales from non-EU sellers into and within the EU.

VAT Triangulation

The supply chain scenario when goods are supplied along a chain of three businesses within the EU and instead of the goods physically passing from one to the other they go directly from the first to the last business in the chain is known as “triangulation”.

Companies in the EU involved in "triangular" sales or drop shipping -  have benefitted from EU VAT simplification rules known as "triangulation".  UK companies can no longer take advantage of the VAT simplifications and may need to:

  • register for VAT in the member state of importation and pay acquisition tax.
  • depending on the country the UK company may need to appoint a fiscal representative in that country.

https://www.vertexinc.com/resources/resource-library/brexits-impact-vat-...

https://www.meridianglobalservices.com/blog/2015/08/07/Basic-rules-surro...

 

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