EU ecommerce is facing one of the biggest VAT reforms yet. In addition to new turnover thresholds, it also regulates how your own sales are recorded in something called a one stop shop scheme. Important updates on how online merchants have to tax their foreign sales were expected to take effect at the beginning of this year. The new regulation has now been postponed to 1 July 2021. Our business partner Flagbit gives an overview of the changes. Our Community Maganger Moritz Naczenski also shares some hints and tips.
What’s been the rule for VAT contributions to date?
Within the framework of the European Union, each country has its own turnover threshold, which is set at different levels. For example, the turnover thresholds in France, Italy and Austria are set at €35,000. If, for example, a German online merchants remains below this turnover threshold, they can sell their products abroad at the German VAT rate. But if this turnover threshold is exceeded, they are liable for tax in the respective country and registration is required there. This often results in time-consuming tax returns combined with language problems and conversion into foreign currencies. In short, the currently applicable regulations no longer cover today's ecommerce requirements.
The old regulations:
- The turnover threshold differs from country to country
- Registration is required in the respective country
- Cumbersome tax returns and potential language problems
So what is changing from 1 July 2021?
With this new regulation, the previous turnover thresholds no longer apply and a cumulative threshold of €10,000 is set for all shipments to EU countries. For shipments that exceed this value, you’re liable to pay tax in every country you ship to. This is also described under the term ‘destination principle’. As an alternative, the one stop shop scheme offers a central point for simplified tax registration.
The new regulations:
- Central turnover threshold of €10,000 (also cumulatively across several supplied countries)
- Destination principle
- Simplification through the one stop shop mechanism
- Applies to all B2C sales (B2B still taxed as normal)
What’s behind the new one stop shop scheme (OSS)?
The new system provides a central collection point that distributes the reported taxes among the countries. This way, the registration process is significantly simplified and the distribution is more equitable.
Every merchant can register and use this scheme if they so choose. Once registered, the scheme applies to all B2C sales and all countries supplied.
Benefits of the one stop shop scheme:
- Central administration
- Simplified registration
What do merchants need to know?
Merchants need to know the distinction between warehousing and service provision when using the OSS scheme. For the time being, only sales to the end consumer are taken into account. But if you operate as a marketplace via Amazon, for example, or maintain your own warehouses abroad, you still have to file a tax return in the relevant country. That means that such a transfer of goods doesn’t fall under the one stop shop scheme.
You also need to supplement your own invoice with local tax rates. For example, in France, tax rates of 2.1%, 5.5% and 10% apply. There’s a risk of selling at a tax rate that’s too high due to false declaration and lowering your margin as a result. Or you set the tax rate too low and end up underpaying taxes. That’s why merchants should offer the goods sold in their online store at an appropriate end consumer price to ensure that the business remains financially lucrative.
Merchants who are considered small businesses for VAT purposes should also pay particular attention here. It can easily happen that you exceed the new turnover threshold, which can result in an obligation to report abroad. That’s why it’s important to take a closer look at your expected turnover.
This reform promises to simplify tax registrations in non-EU countries. These new regulations result in various simplifications for ecommerce trade. We advise online merchants to consult their tax advisor for in-depth information about their new possibilities and find out whether the OSS scheme is a viable option.
This is what Shopware Community Manager Moritz Naczenski says
"Turnover thresholds aren’t a new phenomenon but have often only affected large merchants in the past. Due to the turnover thresholds now being lowered, all merchants have to deal with the process of registering their taxes in the EU countries they do business with. The configuration of taxes is the smallest issue here and can also be done ‘out of the box’. Your tax advisor or a connected ERP can handle everything else. You can find the relevant information in the Shopware user documentation."