There has been a VAT overhaul with new e-commerce VAT rules commencing on 1st July 2021. The rules are supposed to simplify life for businesses that sell online by ensuring VAT is paid where the goods are consumed or the services paid for are provided. However, I think most small businesses are even more confused than before! The changes affect cross-border business to consumer (B2C) activities. The good news is that for small businesses who are not VAT registered, not much is changing. This article discusses the 5 main changes as they are for VAT registered businesses, and the impact for non-VAT registered businesses.
The 5 main changes starting from 1st July 2021
1. Low value consignment exemption of €22 is gone
The first change is that the small VAT exemption for imported goods with a value of €22 or less is gone. Goods purchased from a non-EU country (including the UK), with a value of less than €22, are now subject to VAT. The VAT rate will the relevant rate that applies if the goods were purchased in Ireland. This will generally affects consumers and not businesses as most businesses would be buying more than €22 worth of stock! The customs duty exemption where goods have a value of less than €150 will stay the same.
A new Import One Stop Shop (IOSS) is being introduced to help with simplify the administration and allow suppliers to pay the VAT on behalf of consumers. Suppliers who are importing goods into the EU can declare and pay the VAT due on those goods by making a monthly return via IOSS. When IOSS is used, the supplier will charge VAT to the customer at the time of the supply and the goods will be not be charged VAT when they are imported. IOSS is managed through ROS.
2. Special arrangements on imports
Where the IOSS is not used, special arrangements are in place where the VAT due on importing will be collected from the customer by the operator and returned to Revenue. The operator can be the postal service, couriers or other custom agents. This can only be used where the value of the goods is less than €150. This situation is aligned with the customs provisions allowing deferred payment on both customs and VAT.
3. Marketplaces as deemed suppliers
Where online marketplaces are facilitating the sale of certain goods, they will be deemed as making the supplies themselves. This means marketplaces and platforms, such as Etsy, will be collecting the import VAT where goods with a value of under €150 are being delivered to the EU from an outside country i.e being imported into the EU. This provision does not apply where all parties involved are based in the EU.
4. Distance selling threshold is gone
The current VAT distance selling thresholds will be abolished. Distance selling means selling goods to a private customer in another EU member state.
Details on basic VAT rules including thresholds is in my blog post here. In the case of distance selling under the old rules, once a business had sales of €35,000 or more to a particular member state they were obliged to register for VAT in that member state. They may have been obliged to register in numerous member states if they were over the thresholds in each.
Under the changes coming into action in July 2021, once a retailer/business is selling goods of over €10,000 a year cross-border within the EU, they will be obliged to register for VAT even if the Irish VAT registration thresholds are not reached. The registration threshold was €35,000 per country and is now €10,000 for the total intra-EU sales so this is a significantly reduced threshold. VAT will be charged in the member state that the goods are shipped and the VAT can be remitted through the OSS return.
5. One Stop Shop (OSS)
The new One Stop Shop scheme is an extension of the existing MOSS scheme and it is simplifying how VAT is collected across the EU. Basically it avoids businesses having to register for VAT in multiple EU member states going forward and allows businesses to make a return and payment in their own member state for all intra-EU sales.
- Non-Union Scheme
For use by taxable persons who are non-EU suppliers but who sell to customers in the EU.
- Union Scheme
This is the scheme that EU established sellers use to report to all B2C services supplied cross-border to customers in the EU and to declare VAT due on intra-EU sales of goods.
Non-VAT registered sellers
Non-VAT registered sellers refers to businesses who are not VAT registered. These businesses should keep an eye on their cross-border sales and be aware of the new €10,000 threshold for registering for VAT once total EU cross-border sales exceed this.
Separate to all this and there seems to be confusion on this – if your business imports or exports goods with the UK, you will need an EORI number. This can be obtained by registering for Customs and Excise on ROS. This is a requirement since Brexit but lots of small businesses are only getting to grips with it now.
Non-VAT registered buyers
By non-VAT registered buyers, I mean businesses who are not VAT-registered and who have suppliers who are outside of Ireland. Suppliers may refuse to sell to non-VAT registered individuals because their systems may not allow them to sell to these customers and charge VAT. The systems might be set up only to sell to VAT registered businesses without charging VAT and making their returns under the OSS system.
The Revenue guidance notes on the new e-commerce VAT rules is here.
Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.