Prepping for EU’s 2021 VAT eCommerce Package
Back in 2015 the EU introduced VAT rules that were updated for the age of the internet. The old rules, which were designed long before the advent of eCommerce, were updated, and covered telecommunications, broadcasting, and electronic services. Two years later, in 2017, the EU member states agreed on a second, more comprehensive VAT package. There were small changes in 2019, but the big changes are scheduled to arrive in January 2021.
VAT reforms are expected to facilitate cross border trade, ensure fair competition for EU businesses, and combat VAT fraud. Some areas, such as distance sales, are being changed. Under the current system sales thresholds varied significantly between member states; moving forward the threshold will be lowered to €10,000, and once crossed, cross-border B2C supplies will be subject to the VAT rules of the state of arrival.
Non-EU based businesses selling products to the EU will need to deal with collecting VAT, while platforms like Amazon or Alibaba will need to collect and remit VAT on sales. Mini One Stop Shop (MOSS) rules, which were first introduced in 2015, are being expanded to cover more businesses, which will shield them from registering for VAT purposes and filing VAT returns across multiple member states.
Businesses that work in the EU need to start preparing for the changes to come. “I expect the implementation of the new VAT rules to be a time-consuming and resource-intensive exercise for businesses operating in the EU e‑commerce ecosystem” says Max van de Ven, Head of Indirect Tax at KPMG.
Will 2021 EU VAT Package Have Smooth Transition?
While most countries seem to be on track for 2021, the Netherlands has warned that it is behind schedule, and may not be ready on January 1, 2021. Their tax office is having IT issues, and they expect to have a status update announcement by May 2020.
Should the Netherlands or any other EU country fail to be ready, it could cause major consequences to the other member states. With cross-border B2C transactions likely to be affected, missing states could lead to issues with reporting and double taxation issues on some sales.