On 1 July 2021, changes to VAT on e-commerce were introduced for EU member states. This means that shopping on popular Chinese sales platforms is no longer so cheap, and domestic companies are facing a major revolution. In this article, we explain what changes have been introduced and what they mean for the e-commerce industry.
The first big change is the abolition of the VAT exemption for small consignments of up to EUR 22. This provision applies to the import of goods into the European Union - ordering from AliExpress, for example, is no longer so cheap. From the beginning of July, all consignments arriving in Poland will be subject to 23 per cent VAT (as part of the regulatory changes, the applicable VAT rate is that of the buyer's country, not the seller's). This decision is intended to steer potential customers towards intra-EU purchases.
The regulatory changes affect all e-commerce entrepreneurs within the European Union. Polish entrepreneurs have had the opportunity to register for the OSS system since 1 April. The aim of the changes is to make it easier for entrepreneurs to sell in the EU.
The most important simplification is that companies no longer have to register for VAT in each country in which they want to start selling. An electronic registration on an online platform is enough to pay all sales tax on sales within the EU. This is a huge streamlining of the process, as settlements can be made in the native language on a quarterly basis.
What is the reason for the changes?
The main reason for the changes is to improve the competitiveness of EU sellers.
Taxing everyone, including small consignments, is expected to make it less attractive to shop at Asian or American giants. Instead, customers will be more willing to buy from sellers located in the EU.
The new EU VAT is also expected to simplify the operation of online shops through the introduction of OSS (One Stop Shop) and to tighten up tax rules in the European Union. The tax gap in the EU budget is a serious problem for the countries united in the Community.
OSS is a newly created One Stop Shop, extending the VAT MOSS accounting provisions. VAT MOSS only covered telecommunications, broadcasting and those provided electronically. OSS includes:
The introduction of the OSS means that there are no longer transaction thresholds above which a trader must register and pay VAT in the buyer's country.
The new limit is EUR 10,000. Failure to exceed it means accounting for VAT in Poland.
The IOSS import procedure is intended to give traders the opportunity to declare VAT for shipments up to EUR 150. The introduction of the IOSS makes it the entrepreneur, not the customer, who pays the VAT. The Import One Stop Shop was created to facilitate VAT settlements for traders who supply goods from outside the EU to residents of Community countries.
VAT 0% - is it still possible?
The 0% VAT rate is still possible under the Intra-Community Supply of Goods.
The entrepreneur can be exempted from VAT if the tax has been settled under IOSS or the courier company (or post office) has made a customs declaration. In order for the tax rate to be 0%, the trader must meet certain conditions, including that the supply must be made to a purchaser with a valid identification number for intra-EU transactions and the supplier must be registered for EU VAT.
The new EU VAT procedure involves a major revolution in the e-commerce industry, and its introduction is intended to increase the attractiveness of sellers from EU countries. Finally, the tax rules have also been clarified. Unfortunately, it often turns out that the changes introduced mean higher prices when shopping online.
