The European Union (EU) has established new rules for all imports effective July 1, 2021
The European Union (EU) has established new rules for all imports effective July 1, 2021. The new rules, collectively called Import One-Stop Shop (IOSS) are an attempt to both simplify VAT collection and level the playing field between EU and non-EU players. Currently EU and non-EU sellers selling goods online to EU consumers can import the goods into the EU, directly to the consumer, import VAT-free if the consignment of good(s) is valued at or below €150. This ends 1 July 2021 and all imports will be subject to EU VAT. Sellers and facilitating marketplaces can collect import VAT on import consignments valued up to €150.
The current regulation allows for a low-value consignment VAT exemption, known as the “low value consignment stock relief”, and was intended to relieve EU member countries’ customs from the burden of checking large volumes of packages for small amounts of potential tax revenues. An unintended consequence of this exemption left EU-based sellers at a major price disadvantage since they must charge VAT on goods that are dispatched from within the EU. The exemption has also encouraged large-scale fraud by sellers deliberately under declaring the values of goods to escape the import VAT bill.
The EU has decided to eliminate the current import VAT exempt threshold. Starting July 1st, 2021, EU and non-EU sellers will be required to charge VAT at the point of sale for consignments of €150 or below.
We asked Michel da Silva, an e-business expert at ModusLink to help explain this new regulation.
Q: What will this mean for a typical non-EU seller?
A: Non-EU sellers, including from the UK, will have to appoint a VAT Intermediary to act as their agent in a similar way as to a Fiscal Representative or to use Merchant of Record, who will take care of payments, taxes and compliancy.
Q: Can you give us an example to better understand the new regulations effect on an average non-EU company?
A: Let us consider the VAT obligations today and post-2021 reforms for an example non-EU seller, Client ABC from China:
Today: Client ABC can sell and ship consignments under €22 to EU consumers VAT free. Over that limit, then either the customer or Client ABC has to pay import VAT at the rate of the country of import. To provide a good seller experience, Client ABC pays the import VAT on behalf of its customers.
After July 1st, 2021: Client ABC will charge VAT at the point-of-sale and declare it in an IOSS return if not exceeding €150. They are then exempted from paying import VAT at customs (does this statement make sense, why would the VAT be chaged at point of sale, but then are exempt from paying it?). Client ABC may also declare sales to customers around the EU via its IOSS return, as discussed in the above section (this statement is also not clear).
Q: What about transactions for items greater than €150 for non-EU sellers?
For consignments exceeding the €150 IOSS threshold, the import VAT must still be paid to customs. This could still trigger a regular VAT registration in the country of importation for Client ABC from above example if they wish to sell the goods locally or to consumers in the rest of the EU.
Q: What is a Merchant of Record (MOR) and why would companies use them?
A: A Merchant of Record is a legal entity selling goods or services to a cardholder on a company’s behalf and to whom the cardholder owes payment for such goods and services. The MOR is the responsible party for meeting the IOSS regulations in the EU. The MOR processes all payments and take on those transactions, including collecting sales tax (should this be VAT instead?), ensuring payment card industry (PCI) compliance, and honoring refunds and chargebacks, while acting on behalf of the client. Businesses can choose to be their own merchant of record, but MOR service providers exist to take the burden of payment processing and compliance away from those who prefer to spend their in-house resources elsewhere, such as growing their brand or investing in new product development. Using a MOR is a very good way to to ensure you are in compliance with the law as the MOR can manage the entire process for you.