Business-to-consumer transactions: the new EU VAT rules for e-commerce

Business-to-consumer (B2C) transactions are in the spotlight once again as the EU has overhauled its e-commerce VAT rules. All UK businesses involved in B2C transactions should review their supply chains to ensure that they comply with the new rules. The changes also apply to business-to-business sales (B2B), which should be considered separately.

The changes

Prior to 1 July 2021, online B2C sellers could import goods valued at €22 or less into the EU free of import VAT. From 1 July 2021, all imports into the EU will instead be subject to EU VAT. For consignments of €150 or less, sellers are required to charge VAT at the point of sale at the VAT rate of their customer’s EU country of residence; no VAT is due at the point of import. In addition, businesses selling goods in B2C transactions between EU Member States also need to account for VAT at the rate applicable in their customer’s home country.

These new rules potentially require multiple EU VAT registrations by the same business. The EU has therefore introduced three new VAT regimes to simplify the process.

The three regimes

1. Import One Stop Shop (IOSS)

This new regime allows non-EU e-commerce sellers of B2C goods who are making sales in the EU with a value of €150 or less to account for the local VAT due on a single return rather than through multiple VAT registrations across the EU. Sellers can register for the IOSS in any Member State and all VAT due in the EU will be reported and accounted for on one return. Alternatively, sellers can make ‘special arrangements’ with postal and customs agents to collect VAT due, removing the need for any EU VAT collection obligations.

IMPACT ON UK BUSINESS

Before 1 January 2021, the UK was part of the EU and B2C sales of goods from the UK into the EU below the distance selling threshold were subject to UK VAT. Sales above the distance selling thresholds were subject to the VAT rate applicable in the Member States where the goods were delivered.

Now that the UK has withdrawn from the EU, all B2C sales of goods into the EU are exports and therefore outside the scope of UK VAT. However, sales below €150 give EU VAT obligations for UK businesses. Rather than maintaining multiple EU VAT registrations, UK businesses can opt for an EU IOSS registration to streamline their compliance. For sales of goods above €150, it is still important to review the delivery terms agreed with customers to ensure that VAT is correctly accounted for.

2. One Stop Shop (OSS)

Sellers of B2C digital services have been able to file a single VAT return using the Mini One Stop Shop (MOSS) since 2015 to account for and pay VAT on all B2C electronic supplies, rather than registering for VAT in every Member State in which B2C digital customers are located. As of 1 July 2021, this simplification can also be applied to B2C supplies of goods across the EU that exceed the distance sales VAT registration threshold of €10,000. The previous distance selling regime, which considered turnover in each Member State, has been abolished. Furthermore, some B2C non-digital services, such as admission tickets for entertainment, transport, and some property services, can also use the OSS.

IMPACT ON UK BUSINESS

Now that the MOSS regime has been extended to cover goods, the OSS simplification can be used by UK businesses that hold stocks of goods in the EU.

Before 1 July 2021, such businesses would have had to register for VAT in each Member State where goods were held, and also register in every Member State where B2C sales exceeded the old distance selling threshold. Now, a UK business can register and file its OSS VAT return solely in the country in which it imports the stock and pays VAT. If stock is held in several Member States, separate VAT registrations will be required in each of those countries.

3. Deemed Suppliers and marketplaces (OSS)

The third regime is designed for digital platforms that bring sellers and buyers together in a virtual marketplace. Rather than relying on the sellers to comply with their EU VAT obligations, the EU has shifted the burden to the platform operators. The new deemed supplier rules apply to B2C sales where:

• the marketplace facilitates imports not exceeding €150; and
• the marketplace facilitates EU distance selling or domestic transactions of any value for non-EU sellers.

Alternatively, there are ‘special arrangements’ that allow the customer to pay the import VAT and duties due on arrival through the delivery company of the seller.

IMPACT ON UK BUSINESS

UK businesses that routinely sell low-value consignments to EU customers using online platforms should now have lower compliance burdens because the requirements have been shifted to the platform operator. This significant advantage may prompt UK businesses with low-value EU supply chains to consider channelling their transactions through online platforms.

Please contact one of our VAT advisors for assistance with the impact of these new rules on your business.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.

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