Following on from the changes recently announced by the United Kingdom Government (now a non EU country) about abolishing the distance threshold for VAT collection, the EU has made changes to the way sales tax will be collected effective 1 July 2021.
How does the system currently work (up to the 31 July 2021)?
– eCommerce business that import products to the EU are required to register to collect VAT if they meet a minimum sales level, which differs by EU country
– If the eCommerce importer does not expect to meet this sales level by country they were not required to register for VAT
– Goods imported with a declared value of over $22 EUR required the customer to pay the VAT prior to receiving the package from suppliers that were not registered for VAT
– Goods imported with a declared value of under $22 EUR did not require the customer to pay VAT and were delivered import free from suppliers that were not registered for VAT
How will the system work effective 1 July 2021?
– The distance threshold has been abolished
– It is now optional for non EU resident sellers whether they wish to register for VAT
So what will overseas importers have to do if they ship to the EU?
Each eCommerce business that is resident overseas and shipping to the European Union has to make one of three choices:
– Your business can choose to remove the EU as a shipping destination
– If your business opts to not register for EU VAT, customers will be required to pay VAT on any packages received when they collect, for all declared values. It would be advisable to clearly state this on your website.
– If your business opts to register in the IOSS system to collect VAT, the customer will not have to pay VAT when collecting their shipment. The IOSS number will have to be listed on the package label to indicate VAT has already been collected.
I have read your blog and have decided to enrol my non EU resident business in IOSS – what do I need to do?
– Update your shopping cart (i.e. Shopify) settings to indicate your business will be collecting VAT
– Your business will have to appoint a EU based intermediary to arrange registration in the IOSS system and to lodge the monthly VAT returns on your behalf