On July 1, 2021, new EU tax regulations will come into play when the European Union (EU) Value-Added Tax (VAT) eCommerce package takes effect. The changes are a major overhaul of current tax rules, designed to simplify processes and administration for merchants. They will impact virtually every business-to-consumer (B2C) business involved in cross-border eCommerce trade (often referred to as “distance sellers”) with the EU.
EU merchants crossing a new EU-wide threshold of €10,000.00 will need to register in all EU countries where they make taxable business-to-consumer sales. But, they can choose to do so via the newly-created One Stop Shop (OSS) system in their own country. This allows eCommerce merchants to file a single VAT return for the whole of the EU and make just one tax payment distributed across countries where they make sales.
We’ve highlighted some of the key changes below. As always, we recommend consulting with a tax professional to ensure your business is following regulations and best practices.
Who will be impacted?
The EU VAT eCommerce package impacts EU merchants above an EU-wide threshold of €10,000.00, and non-EU merchants importing goods to the EU.
Merchants have the option to use the One Stop Shop (OSS) filing system to submit a single VAT return for all of the EU, or separately file a VAT return for every EU country that they ship to.
The VAT rate differs from country to country, ranging from 17% in Luxembourg to 27% in Hungary (see the full list of rates), so merchants will want to charge the VAT rate of the buyer’s shipping country for orders within the EU. This includes orders shipped from a fulfillment center in the EU to a location in the EU.
How it works now:
The current distance selling scheme allows businesses to avoid registering for VAT purposes in a country where they make B2C taxable supplies, as long as the total amount of these supplies does not exceed the distance selling threshold in a given year. Businesses apply their local tax rate to those sales as if the sold goods never left their country. Once the threshold is crossed in a given country, they need to register, file VAT returns, and charge the local tax rate from the country of registration for B2C sales.
Let’s consider a German company that sells physical goods to private customers in Romania. Until the German business reaches the yearly threshold of Romanian sales of €25,305.00, their sales are taxable in Germany, with a standard German VAT rate of 19%.
Once the threshold is crossed, starting from €25,306.00, the Romanian sales are taxable in Romania; they need to register there and charge the Romanian standard VAT rate of 19%.
How it will work after changes take effect:
On July 1, distance selling thresholds for particular countries will be abolished, and a new EU-wide threshold of €10,000.00 will be introduced. Once it’s crossed, a business will still need to register in countries where they make taxable B2C supplies, but they can choose to do so via the newly-created One Stop Shop system in their own country.
This will allow eCommerce merchants to file a single VAT return for the whole of the EU and remit just one tax payment distributed amongst countries where they make supplies. In a way, this system will be an extension of the current mini One Stop Shop (MOSS) scheme, available for digital service providers.
So the German physical goods seller, making B2C taxable supplies to Romanian, Czech, and Polish private customers, would not need to register in those three countries. Once they cross the EU-wide threshold, they’ll register for OSS in Germany, file one return, and make one tax payment (instead of three). However, their domestic German B2C sales will still need to be reported on their local tax return, and a local VAT will need to be paid.
What about sellers outside of the EU?
The VAT exemption for the importation of goods of a value not exceeding €22.00 will be removed. As a result, all goods imported to the EU will be subject to VAT. Non-EU sellers face a nil registration threshold, meaning they need to register with their first B2C sale.
To simplify VAT compliance for non-EU sellers, the Import One Stop Shop (IOSS) will be created. IOSS will allow single return filing for merchants who opt to apply VAT at the point of sale on consignments below €150.00. If a business decides not to register for the IOSS, VAT will be paid by the customer upon importing goods in the EU. Consignments valued above €150.00 will be subject to VAT upon import.
IOSS will also impact customs clearance, with the potential to process imported goods faster. With some shipping providers, if the VAT was charged at the point of sale, then the seller can indicate the IOSS number in the Commercial Invoice data to the shipping provider for customs declaration.
Useful information for WooCommerce Merchants
For more information on updating your tax settings, visit our documentation.
Service providers such as Avalara have solutions for merchants selling to the EU: Avalara AvaTax Cross-Border. International tax solutions help to automatically classify items, calculate the VAT at checkout, and file with authorities. Look for an upcoming update to the WooCommerce AvaTax extension to further automate item classification.
When updating your tax settings, we highly recommend consulting with a tax professional to ensure all regulations are being met.
I am the lead developer of the following WooCommerce extension, which has had, and continues to have, many thousands of users since its launch in December 2014 (when the digital goods regulations first came in): “WooCommerce EU/UK VAT / IVA Compliance”
It has been continuously developed during that time, expanding to cover all sorts of types of goods across the world, and during the last year has gained features for handling new EU and UK rules, including the €10,000 internal threshold, destination/value based VAT exemptions, and reports suitable for making your IOSS / OSS report. We began developing it because the prospect of having to be locked in to a SaaS provider every month for at least 10 years (the required amount of time you have to keep records available for audit), as opposed to self-hosting our own data, was rather unappetising!
I’ve used this plugin – it’s whack.
Charles, you don’t sound like someone who’s used the plugin.
I don’t know if the URL didn’t appear or if WooCommerce deleted it manually (which wouldn’t make sense; they have no competing solution, if we’re talking about IOSS/OSS or value/destination based exemptions, and quarterly reporting etc.) or if I just forgot to post it, but it’s:. Or Google “Simba WooCommerce EU VAT compliance”. Or find the free version at wordpress.org and follow links from there for the Premium version. (The free version is enough to make reports if you don’t need value/destination-based exemptions).
Your link was removed as we don’t permit the promotion of third-party extensions (those which are not developed by WooCommerce or available in our Marketplace) on our website.
If you’re interested in promoting your plugin via WooCommerce.com, please visit our vendor page for more information: https://woocommerce.com/develop-woocommerce/
I understand. I did look at your developer program, but the number of hoops to jump through was very high and placed almost all burdens on the developer, whilst taking the majority of the profit to woocommerce.com, and it wasn’t very attractive. I am surprised to hear that you positively take steps to prevent users from knowing about any extensions even in situations where those extensions are the only ways to help users comply with laws; this seems a bit user-hostile. If you want to talk together to find a mutually acceptable way that works for us both, please do get in touch (you can use the email I’ve entered for the comment), as I am interested if we can find something that works for us both.
Thanks for the info David. I’ve saved it for future reference. Looks like a pretty comprehensive product, so when we do start selling I’ll come back to it. I’ve been a bookkeeper for 44 years but now run my own creative business, and this whole Brexit nonsense is such a headache, I just don’t want to have to deal with it, so your plugin looks perfect.
Kind of important and not mentioned. USED OR MARGIN GOODS ARE EXCLUDED FROM THESE REGULATIONS! THEY REMAIN IN THE SAME VAT REGIME AS BEFORE!
Henri. Source of this info, please?
How will these new VAT rules affect digital downloads? Will they be taxed just like tangible goods?
Nothing changes for digital goods.
They can change their tax rules for digital downloads for non-EU sellers, if they wish, but i’ll never be collecting tax on their behalf. Screw them.
Stuff the EU couldn’t care less what they think their rules are. We’re in the UK and we do sell to people in the EU. As for EU VAT two fingers up to them. Couldn’t care less.
How very grown up and constructive…
I sympathise (genuinely) – but if you do that your buyer will get a nasty surprise when they are charged the VAT on delivery. This could provoke extra returns or charge backs.
If I sold to the EU (I don’t as it’s more trouble than it’s worth) then I’d sign up for the IOSS.
Thank you “Silvio” I certainly thought so. LOL 🙂
And Gareth… why would I sign up to some EU Rules. IOSS No Way… Customers are clear that if they order from us and their local governments then tax them when it arrives, then they’re liable to pay it. If I were to sign up for IOSS they’d still be paying it. Just that I’d also have to handle it and the additional paperwork to comply with EU Rules… I don’t live in the EU So I don’t have to play by their rules. QED. Thanks!
You don’t live in the EU don’t mean you don’t have to go by the rules.
If you don’t folow the EU rules for Selling product there, then you souldn’t sell product there because you will have bad surprises if you don’t pay the taxes how it’s suppose to be ^^ Actually when you sell stuff to EU customer they dont pay any added tax like USA and CANADA do. So EU customer aren’t used to pay tax for this kind of transaction.
In EU if you buy something all the price used to be when you buy, so if EU people have to pay an extra amount when the recieved there product they will feel it’s an abuse, and refuse to pay and return the goods.
“If you don’t folow the EU rules for Selling product there, then you souldn’t sell product there”
I don’t sell products there. I Manufacture, and sell products on our web site here in the UK. Where it is made clear that anyone fom the EU who buys product and has it shipped to the EU, may have to pay local import dutys when it arrives with them.
That has had no noticeable effect on our sales or returns whatsoever.
So NO I don’t and won’t comply with Laws and Rules that are made by the EU and are NOT UK LAW! Especially when that results in more cost to me.
We had years of putting up with nonsense “EU Statutory Instruments” Forced on us, Plaguing our lives at our cost. The sooner the Leaders of the EU get it through their thick heads that we are NOT PART OF THE EU AND NOT SUBJECT TO ITS RULES. The quicker this sort of nonsense will stop.
Actually it doesn’t change much in reality it’s just the tax you pay goes to the country you sell. the amount of tax is the same.
Now please explain to me why I should be an unpaid tax collector for the EU. And then there’s creating all the reports and making sure the money reaches not one but every single EU country separately. The EI has never been able to get it’s act together on anything (their COvid-19 response shows just how incompetent they are).
I don’t think this part is correct for EU sellers: “On July 1, distance selling thresholds for particular countries will be abolished, and a new EU-wide threshold of €10,000.00 will be introduced”. Because it’s EU-Wide excluding sales in the EU Home Country. So only when my sales outside of my EU Home Country reach 10.000, I need to worry about this. Unfortunately, I don’t need to worry.
You’re right – the scenario you described as someone in the EU selling within their EU home country would not need to abide by the new threshold.
The new regulations concern those who are selling to other countries within the EU, which is what this post is covering 🙂
At the moment I am a UK seller that is not VAT registered at all ( below the UK VAT threshold ). Does this mean that if I make EU sales of 10,000 Euro I need to register for ( and charge ) VAT on EU sales?
As a small sole trader if that is the case I might simply stop selling to EU countries.
You should check with HMRC as the thresholds for VAT may have changed in which case you may be able to apply for a VAT number to continue selling to the EU, it’s all a massive ball ache, but apparently people knew what they were voting for…
My understanding on this is that as a UK seller you have two choices:
1. Register for the IOSS and VAT register with any one European country; my understanding is that you need to actually have an agent in Europe to do your VAT returns for you, but I don’t have any details on this. You then need to charge the VAT in your online store (like we did before this year, but at different rates for each country) and then do your European VAT returns via IOSS. There’s no 10,000 threshold for sellers outside the EU, so anyone can do this (regardless of whether you’re VAT registered in the UK or not).
2. Continue to have your orders go through customs as they do now and your customers will have to pay the tax and any other fees on import. The only difference from now will be that orders under 22 Euros will now be charged whereas before they weren’t. Of course, there will also be other sellers going for option 1 which means potential customers are more likely to go elsewhere rather than have to pay all the import charges.
There is a third option, which is to use another company (like Taxamo.com) to take care of all this for you. This will apparently cost £2 per order and you’ll need some kind of plugin which will work out the appropriate tax and charges and presumably deduct the money from what you get.
For the record, we’re going with option 2, but 3 doesn’t look too bad if you’ve got plenty of European sales at the moment that you’d like to hang on to.
thanks for the refreshingly well written comment – taximo is the beacon of hope — however we are thinking to run DDP as a delivery service thereby advising customers that they wont receive import charges in conjunction with taximo
would you agree that this can be done the article to me appears to be written incorrectly when stating
” If a business decides not to register for the IOSS, VAT will be paid by the customer upon importing goods in the EU ”
taximo plus DDP should create a no import tax scenario for the customer?
Thanks for your question.
If you’re unsure as to whether the new rules apply to you, we’d highly recommend consulting with a tax professional about what your best options are. They’ll be able to provide the best advice for your specific business in regards to these regulations.
I’m an e-commerce owner based in Spain. I sell wine mainly to other EU countries.
Here in Spain every three months we have to file the VAT of the previous months.
How am I suppose to know if I’ll cross the EU-wide threshold in a year? Should I start to charge already the local VAT to my european customers? What happens if I’ve not crossed the EU-wide threshold in a specific country, for example Denmark, and I have charged 25% instead of 21%? I hope it makes sense
Thank you so much
How am I suppose to know if I’ll cross the EU-wide threshold in a year?
/from you accounting system you need to sum all the sales to EU countries and check if the 10 000 euro is crossed.
If you already crossed the mark of 10k you will invoice your clients with their local VAT and then report in your local OSS.
If your sales to UE are below 10k you continue to invoice your clients with your VAT.
Thanks for your questions!
We’re not tax professionals so our advice is how to use our software. For specific advice when it comes to what or when to charge tax/VAT/GST etc, we recommend consulting with a tax professional or an accountant on what may be your best options.
This will mean many small companies will stop with export as admin will be too complex and not worth the money. 10.000 euro threshold for the whole EU is absurd low and will hot many small players trying to make a living, the EU is a burocratic nightmare.
The one important change is that each merchant within the EU has to meet some regulations that might not be so obvious straight away when reading the info. the correct VAT has to be displayed the latest at the checkout. With products that have different VAT in different country, means getting sure that the cart or checkout is displaying the total amount plus information about VAT and the VAT amount.
From the document i got from EU portal seams that is the obligation of each merchant/online store.
Does this affect retailers from Switzerland who sell products in the EU? Do we also have to observe the new VAT regulations if we sell products worth over EUR 10,000 to the EU?
If you’re unsure whether your business will be impacted by the new regulations, we highly recommend consulting a tax professional to discuss. They’ll be able to advise on the best options for your business.
Yes, I guess this might be the best way to get a few clear answers.
There is full documentation, but if the value of shipment is above 150 EUR, person receiving will have to pay the VAT and customs.
The idea is that VAT is now paid according to the rates of the customer’s location. I am not sure do you have to register, but keep in mind if you do not and sell your product for X amount, people receiving it will have to pay the local VAT on the X + customs duties. The law actually makes sense for both merchants and end-consumers, it is the execution i am interested in 🙂
So if I am reading this correctly I don’t have to do anything if I don’t want to collect VAT. The customer will pay it thru their customs authority?
I read that too, basically at the end. Author is this correct?
That’s correct. You do not need to register for IOSS.
You can carry on as things are right now, and have been since January, where customers in the EU pay customs duties before receipt of their shipment.
That is correct, however, if you decide to do this it may cause issues as your customers will suddenly be charged more than they anticipated.
Unexpected charges like these are likely to upset customers and result in them having a negative view of your store.
If you decide to take this route, we highly recommend being upfront about potential charges at the checkout.
I have sent my items to customers in the EU via Royal Mail. (they are small items). How does the VAT / Duties work in this case if i dont register for the IOSS?
If you decide not to register, any tax or duties will be passed on to your customer upon delivery.
If you choose to take this route, we highly recommend being upfront about potential charges at the checkout so that customers are not met with unexpected fees.
And what about good old Northern Ireland that is both in and out of the EU and the UK at the same time!!!?????
Is this effecting Digital Services, like online courses and ebooks (PDFs)?
I’m building a business in Portugal, offering a rental service. The service is available only in Portugal, but people from all around the world could make a reservation on the website (tourism is targeted).
Are we concerned by this news rules ?
Thanks for every reply,
If you’re unsure as to whether the new rules apply to your business, we highly recommend speaking to a tax professional in your country. They’ll be able to advise on what action you’ll need to take (if any).
So, if we are a U.S. based business selling to those in the E.U., it sounds like we don’t necessarily have to collect any tax or change anything. The customer will just pay the tax when the customer receives their package? Is that right?
Thanks for clarifying.
Yes, but they’re likely to get that as an unexpected tax and with their parcel being held up by customs until they pay it. People aren’t used to that, and they’ll be likely to feel annoyed at your store for not having taken care of it for them.
I sell products to the EU from Switzerland and have NO intention to comply to EU new VAT/IOSS system. Switzerland is not part of the EU and they have no authority forcing a Non-EU member collecting taxes fort their citizen and giving them our quarterly accounts. Since they have no authority over NON-EU member, they cannot incriminate us or make us pay any fine…
So if we use the automated tax option in WooCommerce, is it going to automatically charge VAT/customs taxes during checkout, so that we then have to file the IOSS paperwork? We are a US based store and plan to continue with our clearly stated policy that the customer is responsible for any VAT/customs upon delivery. Is there an option to specify what countries to which it applies automated tax?