VAT: New rules applicable for the European Union from July 1st 2021
On July 1, 2021, the VAT rules applicable to distance selling and more broadly to BtoC E-commerce will be profoundly modified for all European Union (EU) countries.
The implementation of the set of texts amending these rules, known as the "E-commerce package", consisting of Directives 2017/2455 of December 2017 and 2019/1995 of November 2019 which was initially supposed to come into force on January 1, 2021 has ultimately been postponed by 6 months due to Covid-19.
Redefining the concept of distance selling and introducing a single threshold
Among the new features are the redefinition of the concept of distance selling and the introduction of a single threshold.
From now on, a distinction will have to be made between intra-Community distance selling and distance selling of goods imported from countries outside the EU.
Also, as of July 1, 2021, the distance selling thresholds will be eliminated in favor of the introduction of a single threshold.
Intra-community mail order
Intra-Community sales will refer to BtoC sales where the goods are transported by the seller (or on their behalf) from one EU Member State to another EU Member State.
Intra-Community sales remain subject to VAT in the country of arrival, starting from the 1st Euro. However, European companies established in a single EU Member State and whose total annual amount of intra-Community distance selling and intra-Community BtoC electronic services does not exceed 10,000 euros4 before tax, will be able to continue to charge the VAT of their country of establishment.
So let's take the example of a French company that sells goods or services to customers in Germany.
Basically, as long as the French company's Annual Sales (5) to customers located in Germany do not exceed 10,000 euros excluding VAT(4), it will be able to apply the current French VAT rate of 20%. On the other hand, as soon as this threshold of 10,000 euros (4 is exceeded, it will have to apply the VAT rate in force in Germany, i.e. 19%.
Please note: This French company can, however, voluntarily identify itself for VAT purposes in Germany even if the annual turnover threshold for this country has not been exceeded.
This voluntary and anticipated registration allows the seller to:
- avoid a regular follow-up of its turnover,
- directly set up the accounting software so that the VAT rate applied is 19% from the 1st Euro,
- And in some cases (if the difference in VAT rate is significant), obtain a more competitive margin.
Distance selling goods imported from outside the EU
Distance selling goods imported from outside the EU, which will refer to BtoC sales where the good is transported by the seller (or on their behalf) from outside the EU directly to the final customer in an EU Member State.
Distance selling goods imported from outside the EU will also be subject to VAT in the recipient's country, starting from the 1st Euro.
Lifting the VAT exemption on imports for packages whose net value is less than 22 euros
Another new development is that as of July 1, 2021, the import VAT exemption and the exemption from customs declaration for small shipments with a unit value of less than 22 euros will be discontinued. It will be replaced by an exemption from import VAT only for packages with a value not exceeding 150 euros and whose sales are declared via IOSS (1). Packages up to 150 euros will also remain duty free (except for goods subject to excise duties such as tobacco or alcohol).
Please note that in order to benefit from this exemption, the seller must have opted for the centralized declaration and payment of VAT through the IOSS system (1). A customs declaration must also be filed at the time of import. It must mention the seller's IOSS (1) VAT number, the authenticity of which will be verified by the customs service.
In this case, the customer will pay the VAT due at the time of purchase.
The seller will thus be able to opt for the centralized declaration and payment of VAT through the IOSS system(1) and benefit from the exemption in the following cases:
- if it is established within EU territory,
- if it is not established in the EU - but is established in a country with which the EU has concluded a mutual assistance agreement or, in the absence of such an agreement, it has appointed an intermediary established in the EU to represent it.
Introduction of three optional special schemes and corresponding electronic portals (OSS(2) and IOSS(1))
In addition, as of July 1, 2021, the MOSS(3) will be replaced by 3 new optional special schemes that may apply to E-Commerce:
=> The’OSS(2) "non-EU regime" : will allow you to declare intra-Community BtoC services performed by non-European companies.
=> The’OSS(2) "EU scheme" will allow you to declare:
- Intra-EU distance selling by European companies, established non- companies (those established in a country outside the EU with which the EU has concluded a mutual assistance agreement or, failing that, has appointed an intermediary established in the EU to represent it) and marketplaces;
- Local sales through marketplaces;
- Intra-Community BtoC services performed by European companies.
=> The’IOSS(1) "import regime" : will allow yo to declare distance sales for goods imported from non-EU countries, as long as their value does not exceed 150 euros, carried out by European and non-European companies and marketplaces.
The OSS(2) will allow you to declare all the operations concerned and to pay the corresponding VAT amount through a single specific declaration using a single intra-community VAT number. This applies to all countries in which VAT is due, regardless of the applicable VAT rate.
The VAT collected by the tax authorities of the country of identification will then be distributed among the countries of consumption.
The use of OSS(2) will always be optional, and taxpayers will thus be able to choose to benefit from them or to apply the rules of ordinary law.
Moreover, the use of special schemes for one type of transaction does not prevent the application of the ordinary law scheme for other taxable transactions.
Please note: VAT refunds will not be possible through OSS(2). As for the deductible VAT, it will always have to be recovered via the common law procedures.
VAT liability for marketplaces
Finally, the last new development to be introduced on July 1, 2021 concerns marketplaces that will be considered, for VAT purposes, as having bought and sold the products themselves.
This means that there will now be 2 types of transactions for VAT purposes:
- A VAT-free sale between the seller and the marketplace in the country of departure,
- A taxable sale between the marketplace and the individual customer, subject to VAT in the country of arrival.
=> It will be up to the marketplace to collect, declare and pay back the VAT in place of the sellers.
Please note, however, that marketplaces will be liable for VAT only for the following transactions:
- For European companies, distance sales for goods imported from non-EU countries with a value that does not exceed 150 euros;
- For non-European companies, for all BtoC sales made within the European Union, including local sales.
Marketplaces can benefit from OSS(2) to report their sales, including local sales.
How do I configure VAT in PrestaShop according to these new rules?
Let's take the example of a French company selling in France, Germany and the Netherlands.
Here are the VAT rates for each of these countries:
These different rates can be configured in the International > Taxes > Taxes section in your back office.
Then, you have to create 4 tax rules corresponding to the different types of rates in International > Taxes > Tax rules, adding for each rule the country(ies) concerned and selecting the VAT rates created previously.
Example with the standard rate
From July 1, 2021, if the French company has not voluntarily registered for VAT in Germany, and if the annual sales of goods made by the French company to Germany do not exceed 10,000 euros excluding VAT(4), it will have to apply the VAT of the country of sale (France), i.e. 20% for the standard rate.
You will have to change the different VAT rates for Germany in International > Taxes. They will be updated in all corresponding tax rules.
- (1) IOSS: Import One Stop Shop, one-stop shop for imports implemented from July 1, 2021.
- (2) OSS: One Stop Shop, a one-stop shop replacing MOSS as of July 1, 2021. It consists of 2 sub-windows: one for intra-Community distance selling and one for non-EU distance selling.
- (3) MOSS: Mini One Stop Shop. This will be replaced by the OSS and IOSS on July 1, 2021.
- The schemes are optional and allow VAT normally due in several countries to be accounted for in a single EU country. Thanks to these new schemes, sellers do not need to register with the tax authorities of each EU country in which they sell their goods. In effect, these services allow you to register for VAT, file VAT returns and make payments all in one place.
- (4) Amount to be converted into local currency for countries outside the eurozone
- (5) Corresponds to the amount, excluding VAT, of distance sales made by the supplier in the state in which the goods arrived during the previous calendar year or, failing that, the current calendar year at the time of the delivery.
This article is a translation of the original article in French