Value Added Tax, or in short VAT, is a general consumption tax for entrepreneurs that sell to countries in the European Union (EU). It is important for the European single market system to work correctly. VAT applies to all goods and services that are transported to, or consumed in, the EU. Therefore, if you are an entrepreneur selling to countries in the European Union, you will have to deal with VAT. This article will elaborate on e-commerce VAT, EU VAT changes in 2021, how to file your VAT return, but also what to take into account as an e-commerce seller.
E-commerce VAT and EU VAT changes in 2021
As an e-commerce seller, you are more than likely to sell to different countries in the EU. It is therefore probable that your company has to deal with different VAT returns. Because of this, achieving adequate tax compliance might be a time-consuming task.
In 2021, changes in EU VAT legislation have introduced a whole new way of dealing with your VAT returns. Let’s take a look at what these changes encompass. How does it shape the way you have to file your VAT return as an e-commerce seller?
EU VAT changes in 2021
Towards the end of 2017, EU Member States agreed on an integrated VAT e-commerce legislation. This was quite the change. Therefore, it took some time to implement. The legislation would go live by July 2021.
There were a couple of important changes surrounding VAT in 2021. For example, an EU wide distance selling threshold of 10.000 euros was implemented. If your total distance sales exceed this threshold, you have to apply the VAT rates of the country of destination. This is also referred to as the destination principle. Under the threshold, you can apply domestic VAT rates.
The intent of the EU VAT changes in 2021 was to allow online businesses to flourish. Also, it would help to increase international competition between companies of varying sizes. It reduces the complexity and cost of VAT obligations, while lowering revenue losses for EU Member States. The new legislative system was named the One Stop Shop.
What is the One Stop Shop VAT?
A One Stop Shop VAT return compiles all the different VAT returns of different EU countries. Indeed, you only need one single return to handle all your VAT obligations in the EU. Your Member State of identification is the state where your return is filed.
The One Stop Shop has three different schemes. Your business model determines the scheme that is applicable to you. For now, we will shortly discuss the Union scheme and the non-Union scheme.
The Union scheme of the One Stop Shop
First, the Union scheme. This scheme applies to people who have a business that is established in one of the Member States. Your registration has to be in the country where your business is established. You are a taxable seller under the Union scheme if you facilitate a supply of goods:
- via an electronic interface (e.g. Amazon or eBay);
- that runs between different places in the EU;
- to non-taxable persons.
The non-Union scheme of the One Stop Shop
You can also be established outside any Member State while selling to different EU countries. In this case you make use of the non-Union scheme. Basically, a supplier is doing exactly the same as under the Union scheme. The only difference is that you are not established in the EU.
Since you are selling in the EU, you will have to be in line with EU VAT obligations. You can see yourself in this scenario as a non-EU taxable person. In this case, you pick any Member State for your non-Union scheme registration. When registered, the Member State of identification will generate your personal One Stop Shop VAT identification number.
How do you submit your VAT return?
As an e-commerce seller, you have multiple options when it comes to submitting your VAT returns. See, while the One Stop Shop makes the filing of your returns easier, it is not mandatory to use. Furthermore, you might also need to file a local VAT return if you make use of ‘Fulfillment by Amazon’. Depending on your situation, you might have to make use of different VAT number registrations.
One Stop Shop VAT return
Your One Stop Shop VAT return has to be filed every three months. The rules of your particular Member State determine how this works. Usually you can use the local online One Stop Shop portal for your returns.
The Member State of identification will ask you to provide all the details of your sales to different EU countries. Afterwards, the local tax authorities categorize all your sales. This way it is determined how much taxes you have to pay to each particular EU Member State. Also, a personal VAT number is generated. This enables you to pay the full amount to the Member State of identification. Afterwards, they will divide your payments accordingly.
VAT return with different registrations
As indicated, you might opt for different local registrations. If you store goods in a country that is other than the country you have your One Stop Shop registration, local registrations are actually an obligation.
Local registrations require more administration. It also means you have to take into account the different requirements in different countries. For example, there can be differences with regards to the date you have to file your returns. Indeed, you should be aware of the infrastructure and legislation surrounding taxes in different countries. However, having multiple registrations can still be beneficial depending on your situation.
What to take into account with your VAT returns as an e-commerce entrepreneur?
In sum, how your VAT returns should be filed depend on a couple of factors:
- if your company is established in an EU Member State;
- if your total long distance sales in the EU exceed 10.000 euros;
- if you sell to multiple EU countries;
- if you (prefer to) have local registrations.
As an e-commerce entrepreneur, it is more than likely that you sell through different marketplaces. As your business grows, the administrative burden surrounding full VAT compliance grows with it. Many e-commerce entrepreneurs therefore resort to automated VAT return software. However, you should make sure that such software is suited for your e-commerce business.
Want to be sure you achieve full VAT compliance?
Staxxer makes sure that this is the case for your e-commerce business. Due to a vast amount of experience in the world of e-commerce, Staxxer’s VAT return software takes into account the most important aspects to achieve full VAT compliance for any e-commerce entrepreneur. With a personal service in your own language, Staxxer doesn’t rely on robots to answer your questions surrounding VAT returns.
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