From the 1st of January 2021 the EU is introducing changes in the way the online marker sellers comply with the VAT regime in Europe. Instead of having to register in multiple EU countries B2C sellers will be able to file all their EU sales in one return in their home country. This will substantially reduce the compliance obligations boost the EU cross-border online trade.
These changes are aimed at tackling the €5 billion eCommerce VAT fraud gap and get the online marker sellers to collect their VAT at the place of seller.
Distance Selling Thresholds Scrapped
Up to the end of 2020, eCcommerce distance sellers to other EU countries had to register for VAT in each country they sell if they exceed a certain threshold which may be different in each country. These thresholds operated for sellers selling from their domestic stocks.
Currently the EU applies ‘’place of supply’’ rule to small sellers. The special eCommerce registration threshold, known as distance selling threshold is only available for eCommerce sellers trading from their domestic stocks.
From 1st of 2021 this selling threshold will be replaced by the introduction of so called ‘One Stop Shop’. This will be an extension of the MOSS scheme introduce earlier for B2C supplies of digital services. This scheme currently allows sellers of digital services to the EU customers use their home country VAT registration to account for VAT on products supplied to multiple countries and claim output VAT.
With abolition of registration thresholds, it will be required that the domestic VAT rate of the customer’s country of residence should be charged from the first sale and remitted to the foreign tax authority.
EU Distance Seller Thresholds until December 2020:
Germany, The Netherlands, Luxembourg: €100,000 per annum
UK: €70,000 per annum
For all other EU countries: €35,000 per annum, or local currency equivalent
The OSS is an additional arrangement to the domestic VAT return filing and will have to be filed quarterly. It will look like a simple listing of VAT due to each of the EU state apart from the domestic rate. The OSS return will be standardised across all EU member states.
Similar rules will apply to non-EU sellers. They may also benefit from OSS by registering in one EU country and filing one return for all sales in the EU unless they hold stocks in these countries. In this case a regular domestic return in each of such countries will need to be filed.
Quarterly OSS returns should be filed on the same date as regular domestic returns VAT returns and will be done through the local tax authority portal. Sellers on a monthly scheme are advised to contact their local tax authorities for consultation.
OSS will not allow sellers to recover local VAT incurred on hotel or taxi. Sellers will have to complete the 8th directive recovery claim. Similarly, non-EU sellers will have to complete the 13th Directive recovery claim.
What to do now?
No actions are required at the moment. After introduction of OSS scheme, foreign sellers will be able to close their foreign VAT registrations in other EU countries. Non-EU sellers will be able to use OSS for viewing their sales lists to EU countries and % applied in each country. However, sellers who use Fulfilment by Amazon scheme and hold stock in foreign countries will still have to account for their VAT in those countries.
Prepared by Lana Johnson – Tax Consultant and VAT Specialist