New EU VAT E-commerce Rules Begin to Apply

New Value-Added Tax (VAT) rules began to apply on 1 July 2021, as part of efforts to simplify cross-border e-commerce for traders and introduce greater transparency for consumers. The EU’s VAT system was last updated in 1993 and has since become ill-suited for meeting the needs of businesses, consumers, and administrators in an era of cross-border internet shopping.

According to a European Commission announcement, the new rules will ensure that the VAT due on online sales gets paid to the country of the consumer, while also simplifying life for shoppers and traders alike. The changes will affect everyone in the e-commerce supply chain, from online sellers and marketplaces both inside and outside the EU, to postal operators and couriers, customs and tax administrations, right through to consumers.

The new rules introduce several changes to the way that VAT is charged on online sales. Hong Kong traders may have been familiar with the prior system’s VAT exemption for goods imported into the EU valued at less than EUR 22 by non-EU companies. According to the European Commission announcement, the exemption had been long abused with unscrupulous sellers from outside the EU mislabelling consignments of goods in order to benefit from the exemption. The loophole is reported to have cost the EU treasuries an estimated EUR 7 billion a year in fraud. As a result, the new rules have lifted the VAT exemption. This means that all goods imported in the EU are now subject to VAT.

The new VAT rules will also abolish the existing thresholds for distance sales of goods within the EU and replace them with a new EU-wide threshold of EUR 10,000. In the prior system, e-commerce sellers needed to have a VAT registration in each Member State in which they had a turnover above a certain overall threshold, which varied from country to country. Now, sellers may register for an electronic portal called the “One Stop Shop” where they can pay VAT for all their EU sales via a quarterly declaration.  Additionally, the portal allows sellers to register in their own Member State and in their own language.

Hong Kong traders should note the introduction of the Import One Stop Shop for non-EU sellers. The portal will allow e-commerce sellers to register easily for VAT in the EU and ensure that the correct amount of VAT makes its way to the Member State in which it is finally due.  According to the European Commission, the Import One Stop Shop covers the sale of goods from a distance that are:

• dispatched or transported from outside of the EU at the time they are sold;

• dispatched or transported in consignments with a value not exceeding a total of EUR 150 (low value goods) even if the order contains more than one item;
• not subject to excise duties (typically applied to alcohol or tobacco products).

Additionally, the Import One Stop Shop portal increases transparency for consumers. Under the new rules, when consumers buy from a non-EU seller registered in the Import One Stop Shop, VAT should already be part of the price the consumer pays to the seller. This will ensure that the consumer does not have to pay any surprise fees when the goods are delivered.

The Commission has stated that businesses outside of the EU have already begun registering in large numbers for the Import One Stop Shop, including the biggest global online marketplaces. Hong Kong traders and those in their supply chain that are interested in the new VAT rules can access more information on the European Commission’s website.