General principle: VAT is due in the country of destination
When the new regulation came into force on July 1, 2021, the previous mail order rule and country-specific delivery thresholds were replaced by the so-called distance selling arrangements.
One principle remains the same: VAT from the sale of goods to private individuals in the European Union is due in the EU Member State where the goods are sold or consumed.
However, this principle will be significantly tightened as of July 1, 2021. The country-specific delivery thresholds applied up until now will be eliminated and replaced by an EU-wide minimum threshold of €10,000.
Register in each EU country of destination or report via the One-Stop-Shop?
In individual cases, the new regulation may substantially increase the EU Member States’ registration and tax declaration obligations.
In principle, however, merchants have a choice. They can either register for VAT in each of the 27 EU Member States where they sell goods, regularly declare their sales there, and pay the VAT to the local tax authorities of the EU Member States. Or they can take advantage of a new option, the One-Stop Shop (OSS) or electronic portal that will serve as a single point of contact after July 1, 2021.
The One-Stop Shop option can only be used in all EU member states. It is not possible to pick and choose, i.e., mix distance sales registrations in some countries and simultaneously use the OSS in other Member States.
Responsibilities and functioning of the One-Stop Shop for European merchants
In Germany, the office responsible for the One-Stop Shop is the Federal Central Tax Office, BZSt, in Saarlouis. Each EU Member State has its electronic portal where merchants from that country can register.
Third-country entrepreneurs are subject to their regulations, which will be explained in another part of our series.
The One-Stop Shop allows merchants to declare and pay for all their sales within the European Union centrally in just one EU Member State (and not all 27!). This single declaration includes all sales of goods in the EU Member States along with the incurred VAT broken down to the individual countries. Payment of the resulting VAT liability is also made to the OSS.
A vital task of the One-Stop-Shop, which in Germany is the Federal Central Tax Office, BZSt, is known as clearing. Clearing refers to the disbursement of the VAT declared by the merchant and paid to the One-Stop Shop in the EU Member State where the sales transactions occurred. VAT payment to the EU Member States is based on the submitted OSS declarations.
What merchants need to do now
Merchants will have to deal with foreign VAT laws, i.e., with the laws of all EU Member States in which they sell their goods, far more intensively than before.
They must decide whether to register for distance sales in the individual EU27 countries or to choose the OSS option. In both cases, the necessary registrations must be applied for now to be ready in time for July 1, 2021.
Suppose merchants decide for the OSS and already have VAT registrations in the other Member States as a result of the expiry of the mail order rule. In that case, corresponding de-registrations must be submitted by June 30, 2021.
Merchants are also faced with the question of which VAT rate needs to be applied for each of their products in the EU27. Regular, reduced, tax-exempt, exception, withdrawal, etc. – with 27 Member States and many rules and regulations, this is the real mammoth task that is often overlooked. Therefore, merchants should not underestimate this issue and should be dealing with it now.
eClear is already meeting this challenge and has developed a unique database: VATRules. This solution contains all VAT rates, special regulations, exceptions, and exemptions for all viable products in all EU27. It also uses preconfigured connectivity to transfer this information directly to the merchant’s shop and/or ERP system. The valid VAT rates are transmitted on-demand to the shop/ERP system without manual intervention and one-time assignment to the merchant’s product range.
The full-service ClearVAT solution: eClear virtually eliminates VAT in Europe
The full-service ClearVAT solution from eClear virtually eliminates VAT in Europe. For merchants, this means 0% registration, 0% tax, and 0% audit risk abroad with 100% security and 100% immediate payment of VAT refunds from returned goods.