Do you ship to the European Union (EU)? Within the EU? If yes, you’ll want to learn about the sweeping changes to the value-added tax (VAT) system in all 27 EU nations, which goes into effect on July 1, 2021.
The VAT overhaul intends to promote online cross-border commerce and trade within the EU by simplifying tax compliance. The changes impact two types of business to consumer (B2C) merchants:
- Non-EU merchants exporting to the EU
- EU merchants selling across country borders (distance sellers)
Use this guide to learn about the major changes to the EU VAT tax system, and how this impacts your business. Easyship is tracking these changes closely, and will continue to update you with any changes to the policy.
Want help crafting an airtight shipping policy in the wake of these changes? Try our free tool, the Free Shipping Policy Creator.
Changes for Non-EU Businesses Importing to EU
If you’re exporting to the EU, look for these two changes in the VAT tax law and filings process:
1. New €150 VAT Threshold
All imports are now subject to EU VAT tax. Previously, imported goods shipped to EU buyers valued at €22 or less were exempt from VAT. The EU has removed this import VAT exempt threshold.
Going forward, all sellers are required to charge VAT at the point of sale for import consignments valued at €150 or less. For imports valued at €150 or more, regular duty and tax rates still apply. The buyer’s delivery address determines the country-specific VAT rate.
Online merchants can collect VAT at the point of sale. This is known as delivery duty paid (DDP). Doing so means you won’t have to pay import VAT at customs and your shipment will reach the customer more quickly.
If you opt for delivery duty unpaid (DDU), import VAT is owed by the customer at delivery. Couriers may still act as the import VAT collector for DDU shipments. In such cases, VAT will be paid by the customs broker, who must be reimbursed by your customer upon delivery, plus any added broker fees.
With Easyship, you can show accurate duty and tax for each EU shipment. Being transparent about all shipping costs is essential to reducing cart abandonment.
A whopping 43% of online shoppers say they abandon carts due to unexpectedly high shipping fees, which includes taxes. With Easyship, you can offer the streamlined, surprise-free delivery experience EU buyers expect these days.
2. Simplified VAT tax filing
When you collect VAT on goods below €150, you now have the option to declare this in a monthly tax declaration known as the Import One-Stop Shop, or IOSS. This form reports any distance selling across EU borders of imports valued below €150. Imports valued at €150 or greater are filed normally.
You’ll need to register for IOSS in a single EU state, and file quarterly with that local tax authority. All EU imports should include your assigned IOSS identification number, which will inform customs authorities that VAT has been declared properly, and accelerate customs clearance.
IOSS use is optional. Your courier service or online marketplace may declare VAT for you instead. Check whether or not your eCommerce platform facilitates these payments.
If you prefer not to file via IOSS, you’ll need to appoint a fiscal representative to file for you.
3 Changes for Online Sellers That Ship Within the EU
Products sold cross-border in the EU will see three major changes to the VAT tax rules. These changes impact duty thresholds and tax filing processes for EU-based businesses.
1. No more distance selling thresholds
Historically, EU merchants would register for VAT in receiving countries after surpassing a country-specific sales threshold. For example, €35,000 in France. These selling thresholds disappear on July 1.
Going forward, cross-border merchants must charge VAT for all cross-border sales, not just those past a country-specific threshold. Effectively, this means VAT taxes apply to all cross-border EU sales, and that merchants must charge the VAT rate specific to the receiving country. The only exception is for micro-business thresholds, which still apply.
2. New micro-business thresholds
A micro-business is established in a single EU country, with sales of less than €10,000 in each of the previous two years. If this sounds like you, you qualify for an exemption to the EU-wide distance selling thresholds.
A micro-businesses may continue to charge the VAT rate of its origin country, regardless of the shipment destination. As before, you remit VAT payments to your local tax authority instead of those in the receiving country.
3. Less VAT tax paperwork
You can now file a single VAT tax return, known as an OSS filing, for multiple EU countries. In other words, you’re not required to register with or file taxes in each individual country you ship to. You need only submit a quarterly VAT return electronically via your home country’s OSS portal, and retain all VAT records for OSS-eligible sales for 10 years.
An OSS lets you file and pay VAT tax for any EU country, but with two exceptions: your home country, or a country in which you have a physical location or store goods. In a country of exception, you’ll need to file a local VAT tax return.
EU Shipping with Easyship
The new EU VAT regulations will take some getting used to. Specifically, the new duty threshold raises costs for customers and ushers in new filing requirements for merchants.
Additionally, eCommerce platforms in the EU may face additional reporting and VAT collection requirements. We’ll be posting any updates about the EU VAT changes as they’re announced.
Easyship helps merchants with the new EU duty and tax payments in three major ways, as our platform lets you:
- Display accurate duty and tax for any order in checkout
- Collect payments for DDP at checkout
- Coordinate DDU payments with couriers
You can try Easyship for free on your next EU shipment. Just create your free account. You'll instantly save up to 70% off retail on 250+ courier rates that serve the EU.