New EU e-commerce VAT schemes: revolution or resolution?

January 2022

The new EU e-commerce VAT schemes have been in place since 1 July 2021. As with any new initiative there are teething problems but ultimately the new e-commerce schemes may revolutionise how businesses charge and account for VAT on e-commerce transactions. Further, this may resolve the problem of uncollected VAT on e-commerce transactions emanating from the revocation of the VAT exemption on importing low-value consignments of goods not exceeding €22.

In its 2015 communication A Digital Single Market Strategy for Europe, the European Commission announced that the new e-commerce rules would seek to address the challenges arising from the VAT regimes for distance sales of goods and the abusive practices connected to the VAT exemption on the importation of low value consignments. There are several benefits including:

• the ability for EU businesses to operate in a fair and competitive digital economy
• a rise in VAT revenue for member states because of an increase in VAT payments and a reduction in VAT fraud
• a more trouble-free online purchase and delivery environment for EU consumers.

The new schemes cover online business-to-consumer transactions of goods and services made in the EU by:

• EU businesses
• non-EU businesses
• EU or non-EU electronic platforms such as websites and marketplaces that enable the distance selling of goods.

In principle, according to normal VAT rules, a taxable entity carrying out distance sales of goods or services in any member state where it is liable to pay VAT is required to register for VAT purposes in each member state. This leads to multiple VAT registrations in different member states. The new Import-One-Stop-Shop (IOSS) scheme is based on the successful Mini-One-Stop-Shop (MOSS) simplification scheme introduced in 2015 for supplies of telecommunications, broadcasting and electronically supplied services. The new schemes widen the scope of MOSS to apply to distance sales of goods and all supplies of services. Thus, simplification offers the benefit of VAT registration in just one member state (the member state of Identification) and the filing of one VAT return with payment of the VAT charged for supplies in the respective member states (the member states of Consumption). It is worth pointing out that registration under the schemes is voluntary and only available on meeting certain criteria.

The Non-Union scheme covers supplies of services taking place in the EU by non-EU businesses. On the other hand, the Union scheme covers:

• cross-border supplies of services by EU businesses
• intra-EU distance sales by EU or non-EU businesses
• domestic and intra-EU distances sales made by an electronic interface
• distance sales of low-value consignments (not exceeding €150) made by EU or non-EU businesses through electronic platforms and imported from third countries.
• charging and collecting VAT for the member states in which the goods will be delivered
• making customs declarations
• keeping records of transactions.

Finally, navigating the intricacies of the new e-commerce schemes can be complex. Therefore, it is important to seek expert guidance.

Case study

A business in Taiwan sells goods with an intrinsic value not exceeding €150 to consumers in the EU through both its own website, and an online interface that is already registered for IOSS. Aware that the abolition of the €22 VAT exemption on the importing of goods into the EU might render it uncompetitive, it decides to explore the possibility of registering its website under IOSS.

The Taiwan business may only register under the IOSS for sales conducted through its own website. Its sales through the online interface are governed by the interface’s registration. The business can register in any EU member state but must appoint an intermediary established in that member state to fulfil its EU VAT obligations, which include:

• a monthly IOSS VAT return and payment
• collecting VAT from the buyer
• ensuring goods are shipped in consignments not exceeding €150 payments.

For this to happen, the Taiwan business must:

• charge VAT at the rate applying in each member state where sales take place
• keep a record of these transactions
• supply this information together with the VAT collected from customers to the intermediary.

This is just a brief overview of IOSS obligations, for more detailed information and advice you should consult an EU VAT adviser.

About the author

Charles Vella
Mosta, Malta

Charles is a senior VAT adviser at Zampa Debattista, Russell Bedford’s Malta member firm. He joined the firm in 2014, following his retirement from public service.

Charles is an expert in the field of VAT, having served at the VAT department since the introduction of VAT in Malta, occupying several senior positions including Director of Legal and International Affairs and Director General VAT. Charles has significantly contributed to the development, growth, and consolidation of the VAT team at Zampa Debattista.

Author: Charles Vella - Zampa Debattista, Mosta, Malta

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