Cross-border e-commerce –
Everything online merchants
need to know
Since 1 July 2021, the second stage of the so-called VAT digital package of the EU Commission applies. Here you can find out what you have to consider as an online merchant.
Cross-border online business is also referred to as cross-border e-commerce. The two terms describe the online purchase or sale of goods from abroad. This trade sector is becoming increasingly important. Internationalisation and globalisation have made it easier for companies to sell locally and worldwide.
With the entry into force of the second stage of the so-called VAT digital package of the EU Commission on 1 July 2021, several changes mainly affected the tax processing of goods movements.
Cross-border online trade: good opportunities in foreign markets
Cross-border e-commerce offers good opportunities for merchants in foreign markets. Learn more about the key success factors.
Since 1 July 2021, the so-called “distance selling regulation” has applied to cross-border trade in the European Union. Since then, cross-border deliveries of goods to non-entrepreneurs have been generally taxed in the destination state.
At the same time, a new delivery threshold was introduced, and it amounts to 10,000 euros and applies to sales to all EU member states. For cross-border sales of more than 10,000 euros within one year, online merchants must register for VAT in all countries to which they deliver their goods.
The EU One-Stop-Shop (OSS)
With the introduction of the One-Stop-Shop (OSS) as part of the EU VAT reform, numerous changes came into force for internet trade. The One-Stop-Shop refers to the central processing of all VAT reporting and payment obligations arising from the trade in goods with consumers in the EU-27 in a single tax declaration. The use of this scheme requires the merchant to register for it. In Germany, the Federal Central Tax Office (BZSt) is the competent authority.
The EU Import-One-Stop-Shop (IOSS)
For e-commerce merchants and online marketplaces, the newly introduced Import-One-Stop-Shop (IOSS) VAT procedure is also of significant importance. The IOSS special regulation applies to trade in goods with non-EU countries. In addition, tax advisors take these VAT regulations into account when advising and assisting their customers.
The IOSS special scheme, valid in all EU member states, enables online merchants to submit the sales covered by the IOSS procedure to a central office in a single tax return. Merchants participating in the IOSS scheme are exempt from import VAT on IOSS-eligible sales.
To participate in the IOSS procedure throughout the EU, the IOSS registration of an online merchant or an “interface” (online platform or online portal) in only one of the EU member states is sufficient. In Germany, the registration and data transfer is carried out via the online portal of the Federal Central Tax Office (BOP).
The correct application of VAT rates is crucial
Many merchants use the same product price when selling to other EU member states to simplify their processes. However, VAT rates for products in the EU vary. In Ireland, for example, children’s clothing, shoes and books are subject to a reduced VAT rate of 0%. In comparison, a guitar is subject to the standard Irish VAT rate of 23%. In Portugal, on the other hand, children’s items are taxed at the standard rate of 23%, but books and guitars are only taxed at 6%.
There are several places online merchants can go to determine the correct tax rates. On the one hand, the information can be obtained from the respective tax authority in the country of delivery, or the EU database “TEDB” can be used. However, both are very time-consuming, and the databases are not always up-to-date.
Turn overpaid VAT into increased margin
When trading across borders in the European Union, merchants face the problem of determining the correct VAT rates for their products—applying the accurate VAT rate results in customer satisfaction, tax compliance, and revenue increase.
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Online business with the United Kingdom after Brexit
Since the Brexit referendum on the UK’s (England, Scotland, Wales, and Northern Ireland) exit the EU, completed on 1 January 2021, there have been many changes in e-commerce. Cross-border goods shipments to the UK are no longer subject to the European VAT system directive. The changes affect foreign online merchants and online marketplaces in particular. These include the obligation to register for VAT in the UK and some new regulations under customs law, as the UK is considered a third country from the perspective of the EU internal market.
Since Brexit, the same regulations apply between the European Union and Great Britain as between the EU and other non-EU third countries. To be allowed to trade with the UK, merchants must first register.
The United Kingdom left the European Single Market and the Customs Union on 31 December 2020 as part of the so-called Brexit. Find out how the new agreement will affect e-commerce with Great Britain and Northern Ireland.
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