The VAT rules applicable to distance sales of goods to individuals (B2C) have been profoundly modified since July 1, 2021 with a view to meeting various challenges linked to the exponential growth of electronic commerce in the European Union (“EU”) in recent years, in particular to curb abusive practices and disruptions of competition between operators established in the EU compared to those established outside the EU who sell goods imported from third countries duty free, and to facilitate reporting obligations and payment of VAT by operators liable for VAT due in an EU Member State where they are not established.
The purpose of the measures is:
- to simplify the regime applicable to intra-Community distance sales of goods (B2C) in the context of the extension of VAT liability in the Member State of destination, and to establish a special regime for distance sales of goods imported from third countries (non-EU);
- alleviate the burden of declaration and payment formalities for businesses liable for VAT in different EU member states where they are not established by extending the possibilities of using the One Stop Shop;
- remove the VAT exemption thresholds for low value imports (€ 10 / € 22) which proved to give rise to abusive practices;
- introduce special provisions applicable to sales of goods facilitated by electronic interfaces, in particular online marketplaces.
Simplification of the system for intra-Community distance sales of goods
In general, distance sales relate to deliveries of goods shipped by or on behalf of the supplier to a private customer, including when the supplier is indirectly involved in the shipment or transport of the goods. This regime does not apply to new means of transport, goods installed or assembled by the supplier, nor second-hand goods subject to the VAT margin scheme.
With regard to distance sales of goods shipped from one Member State to another, the simplification concerns the elimination of turnover thresholds (€ 35,000 / € 100,000) beyond which deliveries were subject to VAT in the Member State of destination and not in the Member State of departure of the transport.
Today, intra-Community distance sales are subject to VAT in the Member State of delivery of goods from the first euro(note that micro-enterprises whose threshold for distance sales of goods shipped from their Member State of establishment does not exceed € 10,000 per year in the whole of the EU may nevertheless subject their sales to the VAT of their Member State of establishment).
On the other hand, operators using the One Stop Shop Union scheme (see below) are exempt from issuing invoices for their intra-Community distance sales of goods to individuals.
Special arrangements for distance sales of imported goods contained in shipments of an intrinsic value not exceeding € 150
By using a dedicated One Stop Shop (Import One Stop Shop), operators established or not in the EU who import goods sent from a third country (outside the EU) contained in consignments whose intrinsic value does not exceed 150 € can consolidate in a single Member State their reporting obligations and payment of VAT due on subsequent deliveries in the different Member States of destination, and benefit from an exemption from import VAT and accelerated customs clearance (H7 statement).
This regime does not apply to excise products (alcohol, tobacco, energy products).
When this system cannot be or is not used, operators must in principle be registered for VAT purposes in all the Member States where they make distance sales of goods to individuals.
However, concerning distance sales of goods imported from third countries in consignments of an intrinsic value not exceeding 150 €, the importer who does not use the Import One Stop Shop may alternatively use a special VAT payment regime.
Under this alternative regime, VAT on imports will be collected from customers on importation, declared and paid on the basis of an overall monthly declaration to customs services by the carrier. This simplification only applies to goods imported into the Member State of consumption (low value goods not imported via the Import One Stop Shop in another EU member State will be placed under the customs transit procedure and declared for free circulation in the EU member State to which the goods are transported to be delivered to individuals).
Finally, the Member States may provide that imports made under this system of products liable to the reduced rate of VAT are subject to the standard VAT rate.
One Stop Shops
The One Stop Shop (‘OSS’) optionally allows operators to consolidate their VAT declaration and payment obligations with a single EU member State rather than registering for VAT in all States where they are liable for the VAT due locally on their distance sales of goods or services.
There are three One Stop Shops:
- the One Stop Shop Union scheme for intra-Community distance sales of goods and services provided by operators established in the EU, which can also be used by operators established outside the EU for their only intra-Community distance sales of goods. This regime can also be used by electronic interfaces for domestic sales of goods that they “facilitate” (see below);
- The One Stop Shop Non-Union scheme reserved for the provision of services provided by operators established outside the EU;
- The Import One Stop Shop for distance sales of goods imported from a third country contained in consignments of an intrinsic value not exceeding € 150 (see above).
We can notice that the One Stop Shops are optional in the sense that the operator may prefer to register for VAT in the Member States where he is liable for VAT without being established, in order to fulfill its declarative obligations and payment of VAT.
On the other hand, the ability to use One Stop Shops concerns a limited number of operations that fulfill certain conditions. For example, the operators who practice drop-shipping for the purpose of selling to individuals goods sent from another Member State remain obliged to register for VAT in all the Member States of destination without being able to use the One Stop Shop Union scheme.
Lastly, One Stop Shops do not allow declaring VAT deductions on expenses, so operators may have to use the reimbursement procedures provided for by the 8th / 13th VAT Directive if they are not identified for VAT in the Member State concerned.
Sales of goods facilitated by electronic interfaces
In some cases, online platforms are responsible for collecting VAT due for distance sales of goods they facilitate. They are fictitiously seen as buying the goods from the underlying supplier and selling them to ultimate customers. In this case, it is the platform that will have to collect the VAT on the sale as ‘deemed supplier’ and no longer the underlying supplier.
This regime applies:
- on the one hand, to all distance sales of imported goods contained in shipments of an intrinsic value not exceeding € 150, regardless of the location of the underlying supplier. Conversely, the electronic interface is not regarded as a buyer-reseller of imported goods when the intrinsic value of the shipment exceeds € 150.
- on the other hand, as regards the only suppliers established outside the EU, for domestic (B2C) or distance sales of goods originating in the EU or already released for free circulation in the EU, regardless of the value of the consignments. Conversely, the electronic interface is not regarded as a buyer-reseller of EU goods sold by an EU supplier.
The table below outline the registration obligations of the underlying suppliers and the possibilities of using or not the One Stop Shop (Union or Import regime) depending on whether the electronic interface facilitating the sale of goods is considered as a buyer-reseller in the two aforementioned cases:
Issues and constraints of the definitive VAT system applicable to distance sales (B2C)
While the reform undeniably constitutes a step forward in terms of simplifying and reducing administrative formalities when companies are liable for VAT outside their country of establishment, it nevertheless leaves various constraints, including for example:
- the complexity of having to manage the updating of multiple VAT rates in accounting systems depending on the place of destination of goods;
- cashflow costs inherent in VAT credits which cannot be offset against VAT due through One Stop Shops;
- the complexity of having to manage several VAT declaration procedures (domestic VAT, One Stop Shops, 8th / 13th Directive refund procedures);
- the obligation for a supplier to register for VAT in all Member States of the Union where he is liable for VAT on distance sales of imported goods contained in shipments exceeding 150 €;
- management of proof of shipment to the various Member States;
- operators may still have to undergo tax audits / requests for information from the tax services of different Member States.
Practice shows that if the purpose of the reform is ultimately to simplify the VAT system and reduce formalities for operators, it is nevertheless important to review each situation on a case-by-case basis and to compare the different options for organizing the VAT compliance function optimally, in order to derive the full benefit of the new measures without their drawbacks.