Article: VAT 2021: e-commerce goods supplies originating outside the EU
16 April 2019
Update 2021: Meanwhile, the entry into force of the rules has been delayed until 1 July 2021 due to the corona crisis. Also, a change in customs regulations has led to changes in the VAT treatment described below. We have written an update on this which you can find here. BDO will soon be discussing these new rules in various webinars and workshops.
As per 1 January 2020 and 2021, the VAT rules for international trade will change in some important respects. In this article we look at the new VAT rules for e-commerce with goods supplied from outside the EU.
Current VAT rules
When individuals buy goods located outside the EU, the goods must be imported into the EU. This can be in the name of the supplier or the individual:
- Import in the name of the supplier. In that case the supplier has to pay import VAT. The import VAT can be deducted via the VAT declaration. If the goods remain in the country of import, there is a local supply in the country of import. VAT is due in that country. If the goods are going to another EU Member State than the importing country, this is a distance selling within the EU whereby the supplier has to pay VAT in the Member State where the goods arrive.
- Import in the name of a private individual. The supply to the private individual is not taxed in the EU. The individual must then pay the import VAT. However, when a parcel has a value of no more than 22 euro, there is an exemption from import VAT in the Netherlands. This also applies if parcels are presented to customs together in one shipment and that shipment as a whole has a value of more than 22 euro. The exemption also applies provided that each parcel is separately addressed to the customer in the EU.
The possibility to make use of the import exemption as a private person is of course widely used. Packages with a value of more than 22 euro are regularly undervalued. This means that a value of under 22 euro is stated on the parcel, while the value is over 22 euro.
Changes per 2021
As of 1 January 2021, the VAT rules for distance selling with goods originating outside the EU will change on a number of important points:
1. The exemption for imports of small consignments of 22 euros will disappear. VAT is therefore due on each import.
2. There is a distance sale of goods outside the EU if the goods are imported into another EU Member State than the EU Member State of destination of the goods. This applies regardless of whether the individual or the supplier imports.
3. The supplier can make use of a One Stop Shop (OSS) system for declaring the distance sales when the conditions set for this are fulfilled. One of the conditions is that the imported goods have an intrinsic value of not more than EUR 150. This declaration is called the import OSS declaration or simply I-OSS. It is not compulsory to file a declaration in this way. In that case, the VAT declaration is submitted in the company's own Member State (for EU traders) or a Member State of choice (for non-EU traders). The Member State where the declaration is submitted will forward the declaration and the VAT due to the EU Member State where the VAT is due to be paid. If the entrepreneur uses the I-OSS declaration, he will receive a special VAT identification number.
4. If the supplier gives his special I-OSS VAT identification number to the customs authorities at the time of import, he will receive an exemption on import. He is thus liable for VAT only on the distance selling in the EU Member State of destination.
5. There is also a possibility to declare import VAT on a monthly basis instead of always at the moment of import. This scheme is aimed at postal and courier companies. The option only applies to goods with an intrinsic value of not more than EUR 150 and when the goods remain in the EU Member State of import.
6. If no use is made of the I-OSS or the special scheme whereby monthly declarations are made, VAT is due immediately upon import. The option of declaring the import VAT in the regular VAT return by means of an Article 23 authorisation will continue to exist in the Netherlands.
Amendments based on a fictitious example
We would like to explain the above rules for you by means of an example. Suppose that a Chinese seller of phone cases offers these phone cases via a web shop to private individuals in the Netherlands, Germany and France. Every time he has sold enough phone cases he sends them in a group shipment to the Netherlands, where the goods are imported. Each phone case has a value of EUR 20.
For VAT purposes, two different taxable events can be distinguished in this example:
- The import into the Netherlands.
- The supply to private individuals.
The Chinese entrepreneur now has two options:
- File a declaration via the I-OSS.
- Filing a declaration in the regular way.
If the Chinese entrepreneur opts for the I-OSS, the VAT consequences are as follows:
- When importing into the Netherlands, the Chinese entrepreneur gives his I-OSS VAT identification number to the Dutch customs authorities. He does not have to declare import VAT.
- In his periodic I-OSS return, the Chinese entrepreneur declares Dutch VAT for supplies to Dutch private individuals, German VAT for supplies to German private individuals and French VAT for supplies to French private individuals.
If the Chinese entrepreneur does not opt for the I-OSS and imports in his own name, the VAT consequences are as follows:
When importing into the Netherlands, the Chinese entrepreneur owes Dutch import VAT. He can deduct this import VAT in his Dutch VAT return.
Deliveries to Dutch private individuals are taxed in the Netherlands, so the Chinese supplier will submit a VAT return in the Netherlands. Deliveries to private individuals in Germany and France are subject to VAT in Germany and France. The Chinese supplier must also submit regular VAT returns in Germany and France.
Since the goods do not remain in the importing country, it is not obvious that the option to file monthly returns is used.
Consequences for practice
The new scheme creates a level playing field between goods supplied from outside the EU and goods supplied within the EU. However, the undervaluation of packages remains lucrative (less VAT is then due) and the new rules do not offer a direct solution for this.
The VAT rules are complicated and the consequences will have to be examined on a case-by-case basis and whether it is advantageous to use the I-OSS or the monthly return option. It is not only suppliers established outside the EU who are affected by the new rules. This also applies to suppliers established within the EU when their goods are located outside the EU or when they own a platform through which supplies of goods from outside the EU are facilitated. We will deal with the VAT position of platforms in Part 6.
If you expect to be confronted with these new rules, it is important to assess your VAT position in good time. We will, of course, be pleased to assist you in doing so. Please feel free to contact one of our VAT advisers. Curious about the other changes in the law relating to international trade? Then please take a look at parts 1, 2, 3, 4, 6 and 7 of this series of articles.
In December 2019, we wrote an update of this perspective in response to a further interpretation of VAT rules for distance sales and certain domestic supplies. You can find it here. This update also assumes an entry into force of the new rules on 1 January 2021. This has now become 1 July 2021.