Many businesses have felt the impact of Brexit. Retailers in particular may have noticed a drop in sales from the EU as customers are not willing to deal with the costs of importing goods into the EU. Other retailers have tried to manage this by holding stock in the EU but faced challenges getting the goods into the EU. These obstacles occurred regardless of whether the retailers were selling direct or via a marketplace as the marketplaces made it clear they would not take responsibility for any customs clearance.
However, the EU made some significant changes on 1 July 2021 which will help UK (and other non-EU) retailers to access the EU by removing the costs for consumers for lower value sales and also reduce the costs of VAT compliance for these retailers.
EU VAT changes
Sales of imported goods under €150
The €22 import VAT exemption on low value consignments has been withdrawn. This means that import VAT is due on all goods entering the EU regardless of the value. To remove the burden of paying this VAT from the EU consumers, the ‘Import One Stop Shop’ has been introduced. This allows businesses to charge VAT to the EU consumers at the rate in force in the customer’s country and file a single return declaring this VAT. This can only be used for consignments not exceeding €150 and cannot be used for excise goods.
UK businesses must register via an intermediary that is jointly and severally liable for the VAT. This means that the fees can be slightly higher than the usual VAT compliance. Registering for the Import One Stop Shop is optional and UK businesses can continue to make the EU consumer liable for the import VAT.
Sales of goods located in the EU to EU consumers
Prior to 1 July, sales to EU consumers located in a different Member State to where the goods start their journey fell under the distances sales rules. This meant that VAT was charged at the rate in force where the goods were stored until the distance sales threshold was breached in any Member State. Once breached, the supplier was required to register for VAT in the customer’s country and charge local VAT. This resulted in multiple VAT registrations (and high costs) for many retailers.
To manage this more effectively the One Stop Shop return has been introduced which allows VAT to be charged based on the customers location and filed in a single return. Businesses must register for the One Stop Shop return either in their own country or the country the goods first enter the EU if they are not an EU business. A VAT registration is still required where suppliers hold stock but the One Stop Shop return should reduce the EU VAT compliance bill for many retailers.
Sales via marketplaces
UK (and other non-EU) retailers that sell via marketplaces may see their EU VAT compliance obligations either removed completely or significantly reduced under the new rules. From 1 July 2021, marketplaces become the deemed supplier of the goods to the consumers in the following situations:
- Sale of imported goods under €150. In this scenario, the UK retailer does not need to consider the import One Stop Shop as the marketplace will be responsible for charging the VAT to the consumer. The sale to the marketplace is outside the scope of EU VAT
- Sale of goods located in the EU at the time of sale by a UK supplier. Under this rule, UK businesses that hold stock in the EU for sale via a marketplace will be deemed (from a VAT perspective) to sell to the marketplace who then sells on to the consumer. This means they will not need to register for the One Stop Shop unless they sell directly in addition to the marketplace. These retailers will still need to hold a VAT registration where they hold goods but the sale to the marketplace will be zero-rated.
These are significant changes to the EU VAT regime but have been done to simplify VAT compliance for traders and make trading with and in the EU more accessible. This should be a boost to UK retailers who have noticed a reduction in their EU sales following the UK’s departure from the EU.
If you have any questions, please contact Alison Birch below.