EU VAT Changes For E-Commerce In 2021

EU VAT Changes For E-Commerce In 2021

6 November 2022

There are a couple of important changes to the VAT rules for e-commerce businesses.

And as many e-residents are in e-commerce space, it’s a rather important topic. The good thing is that most businesses in e-commerce use platforms like Shopify & Amazon. These behemoths have armies of lawyers and have probably been preparing for these changes ever since they became public.

The new EU VAT rules for physical products will be very similar to the MOSS-scheme which is applicable for selling digital products in the EU.

Additionally, the importers of goods from outside of the EU will be able to apply for Import One-Stop-Shop or I-OSS.

The changes will apply from July 1st, 2021.

EU VAT Changes for e-commerce

Currently, when you sell physical products to consumers of another Member State, the following rules apply: 

Because physical products are delivered to consumers in different countries, and VAT by nature is a tax on consuming, you need to apply for a VAT of that Member State once you exceed the distant selling threshold.

1. It’s likely you will not become VAT liable in Estonia if products are not delivered to Estonia.

2. You need to apply for a VAT number in the countries where you have warehouses (countries where the products are physically stored and the turnover is created). For example, if you are using a German warehouse, you need to obtain a VAT number in Germany.

3. Once you reach the distant selling threshold, you need to obtain the VAT number of the country where the threshold is exceeded.

Please see the VAT thresholds per Member State below.

Table of VAT thresholds

What’s changing

The current system for B2C e-commerce isn’t exactly convenient. Having to apply & report VAT in different Member States can be pretty daunting, even though there are platforms that make it easier (but it’s still costly).

As a result of the 2021 changes, distance sales within the EU done by non-EU businesses will be subject to the VAT rules of the Member State where the transport ends. Essentially, a US company selling to the German consumers will need to follow the German VAT rules. And charge and report German VAT (can register for the I-OSS). Currently, consumers are usually declaring and paying the VAT and customs taxes when they buy something outside of the EU.

But with Estonian company, you’re operating an EU-based business. And if you’re selling physical products to consumers of other Member States, a new 10 000€ threshold will apply. Once you exceed the 10 000€ threshold, the sale takes place in the country where the transport of the goods ends.

However, instead of having to apply for the VAT number of each EU country you’re selling to, there will be a similar one-stop solution as there is with digital products (for around 5 years the EU has had a MOSS scheme in the EU to simplify collecting tax for digital services).

This means that you collect and report VAT through the so-called OSS regime in one country, for example, in Estonia (as an Estonian company). And then, the Estonian tax office will distribute applicable VAT to each Member State according to the OSS declaration you’ll need to submit (your accountant does that for you).

Bear in mind that you have to apply for the OSS regime in the country where the merchandise is – i.e if you’re importing to a warehouse in Germany (products are in Germany), then you have to apply for the OSS in Germany. The location of the products matters.

Essentially, you no longer have to have multiple VAT registrations in different EU jurisdictions. This will save money on administration costs.

Hence, it’s a pretty good change for e-commerce companies.

We’ll be updating you more about these changes in the next six months before they take effect.