New VAT rules for the e-commerce industry will apply as per July 1, 2021, specifically for deliveries inside the EU. This raises many questions. We spoke with Duy Nguyen, CEO at Blue Turtle Tax and posed him a few questions.
What is the current VAT situation?
“Currently it is obliged for B2C e-commerce organisations to calculate taxes in the country from which a product is shipped. For example: you sell from the Netherlands to a German consumer, then you will need to calculate 21% Dutch VAT. However, if you cross a sales threshold in a specific year, then you will need to calculate VAT following the VAT in the buyer’s country. As in the previous example: if you would cross the 100,000 EUR threshold per year, then you will need to calculate 19% German VAT from the moment you exceed 100,000 EUR in sales to German customers.
The threshold differs per EU country. The threshold in Belgium for example is 35,000 EUR. This causes a lot of administrative work, because you need to register for VAT in each consumer country, submit VAT declarations and pay VAT to the respective tax authorities.
An extra requirement is applicable to pan-European FBA sellers. They also need to register and apply for taxes in the countries where they keep stock.”
What will change as per July 1 and what are the implications for my organisation?
“The thresholds per country disappear per July 1, 2021, which means that you will always have to apply for VAT in the country of the consumer. A general threshold of 10,000 EUR for the EU and for e-commerce sales of goods and digital service will be effective as from then. If you sell less than 10,000 EUR in other EU countries, then you can maintain the Dutch VAT rules to your customers in other EU countries.
The good part is that you don’t have to register for VAT in the endconsumer’s country anymore. You also don’t need to apply and pay local taxes anymore. You can simply make your declarations through an OSS (One-Stop Shop) from the Dutch Tax Authority. You pay your taxes to the Dutch Tax Authority, who then divides your payment over all other tax authorities in the EU which you filed in your OSS. The OSS is not mandatory to use.
What stays important for FBA sellers, is that registrations for the stock keeping countries remain. The biggest change here is that FBA sellers, according to the new rules, no longer sell to the B2V consumer, but to Amazon. The B2C sales are taken up by Amazon. The seller needs to sell to Amazon first and Amazon sells it to the end consumer. This means that things simplify for the FBA seller on this matter, because now Amazon is obliged to calculate VAT to the B2C consumer.”
To whom do these changes apply?
“These apply to all parties involved in e-commerce, mainly the e-commerce sellers and marketplaces. But also carriers, customs and VAT-representatives face consequences of these changes.”
What are the differences between products purchased in - or outside the EU?
“There is not much difference. The difference is mainly in the place of fulfillment, so where are the goods when the order is made. The above explanation is answered from the perspective of having fulfillment in the EU, for example the Netherlands. Does the fulfillment take place in the UK, then other rules apply. Packages with a maximum worth of 22 EUR that are sent from outside the EU to a EU consumer, currently hold a VAT exemption. This disappears per July 1. The customs exemption for packages with a maximum worth of 150 EUR will remain. Furthermore, it will be obliged for these cases that VAT needs to be charged in the country of the consumer. One can also use the OSS declaration for this.
There will be an additional arrangement for packages with a fulfillment outside the EU with a maximum worth of 150 EUR, called iOSS (import OSS). One does not need to pay customs duty and VAT directly at the import when using iOSS. This is reported via the iOSS declaration and paid to the tax authorities where the seller applied for the iOSS. This saves a lot of administrative work.”
What do entrepreneurs need to do to prepare themselves? What should they take into account?
“A lot! FBA sellers should take into account that the VAT-calculation and administration changes. They will make a B2B sale to Amazon, instead of a B2C sale to the end consumer. E-commerce sellers in general will also need to change their VAT-calculation and administration. Without threshold you will need to calculate the VAT of every EU country that you sell to. This could affect prices and profit margins.
Register as soon as possible for the OSS declaration. Also, check if you should keep your current VAT registrations and declarations.
Supply chain might also be relevant for your financial position. Check how the VAT affects your supply chain as per July 1. If you import goods from China into Germany, you now pay import duties which you can now still offset against the VAT that you charge the B2C end consumer. If this VAT calculation disappears per July 1, then you will keep a continuous VAT reimbursement position, which is bad for your cash flow. There are good options to solve these cash flow issues, by changing your supply chain.
Good to know is that not all tax authorities are up to speed with the implementation of these changes, starting with our own tax administration. They run behind in their automation and therefore apply a fragmented approach in which most actions are performed manually. This will incur errors, delays and unclarity. They also communicated that there will be a maximum capacity of what the tax authorities can handle due to this manual approach.”
What steps should entrepreneurs take to prepare themselves?
“Take the changes and walk through your business processes in a pragmatic way to analyse what the impact will be on your business, invoicing, VAT-calculations, supply chain, declarations, relations with the marketplace, etc. You will also need to make a few choices: do I choose to use an OSS-declaration and when? Should I change my supply chain to improve my cash flow position?
It is important to note that there are also opportunities for sellers. The new rules also make life easier, such as the OSS declaration and the fact that FBA sellers no longer need to charge VAT directly to the end consumer. I would say: walk through your business processes and take action as soon as possible, because implementing changes doesn’t go very fast when you are dependent on different tax authorities in the EU. De-declarations and declarations can currently take a lot of time.
What does Blue Turtle Tax do and how can you help?
“We are practical-oriented tax experts with knowledge and experience in e-commerce and supply chain. Should you have any questions, or don’t know how to proceed after your check, we are here to help you to prepare for these changes and help you get the most out of these new rules.”
Blue Turtle Tax
Blue Turtle Tax offers VAT, consultancy and technology services for companies. They help their clients to have everything in place and to be well prepared for the future with their profound knowledge, strong experience in multiple industries and an excellent service.