European Union: European Commission Proposes New VAT Rules To Support E-Commerce And Online Businesses In The EU

Last Updated: 3 February 2017
Article by Kinanis LLC

On 1 December 2016, the European Commission has published proposals to improve the Value Added Tax (VAT) environment for e-commerce businesses in the EU. Particularly, the proposed changes, aiming to allow start-ups and SMEs, to buy and sell goods and services more easily online.

Specifically, the proposal refers to:

  1. The introduction of a single portal ('One Stop Shop') through which businesses could account for VAT due on supplies of goods and services in other Member States aiming at the reduction of the VAT compliance expenses of the e-commerce businesses they currently encounter;
  2. The removal of the import VAT exemption of €22 for small value consignments entering EU from outside the EU aiming to provide a level playing field to EU businesses;
  3. An annual threshold of €10,000 below which businesses selling cross-border could continue to treat sales as though they were domestic, aiming to minimise burdens attached to cross-border e-commerce arising from different VAT regimes;
  4. An annual threshold of €100,000 below which businesses selling cross-border will benefit from simpler procedures for identifying where their customers are based;
  5. The option allowing Member States to align VAT rates on electronic and printed publications aiming to correct the less favourable VAT treatment of e-publications compared to printed publications.

Subject to agreement by the Member States, the proposed reforms could start as early as 2018.

A. New rules - expected to be introduced in 2018

A1. New VAT Rules for sales of services electronically

Currently, businesses selling cross-border electronic services have to register in ALL the Member States to which their customers are based, no threshold exists.

With the proposed action, businesses selling cross-border electronic services without exceeding a threshold of €10.000 per annum can opt to apply the rules of their home country. This rule simplifies the VAT treatment for a large number of small businesses which can remain out of the Mini One Stop Shop (MOSS) regime, this way.

Moreover, this would result to the use of familiar domestic VAT rules regarding the invoicing requirements and record keeping rather than the ones applicable in the Member State of the customer, as it currently applies.

Also, small businesses will no longer be audited by each Member State where they have sales, but by the tax administration where the business is located.

Another simplification for SMEs selling online services, is the fact that if their yearly turnover remains below €100.000, these companies will only have to collect one proof of evidence to prove their customer's location. Currently, they are required to collect two pieces of evidence.

A2. Equal vat rate for e-books, e-newspapers and their printed equivalents

Currently, Member States are allowed to tax printed publications such as books and newspapers at reduced or in some cases zero rates, whereas their electronic equivalents, e-publications, are subject to standard rate.

The Commission proposes to grant all EU Member States the possibility to apply the same VAT rates to e-publications as they currently apply to their printed equivalents (possibly reduced rates).

B. New rules - expected to be introduced in 2021

B1. New VAT Rules for sales of goods electronically

The simplification rules described above for the sale of electronic services are expected to be extended to the online sale of goods by 2021.

B2. VAT One Stop Shop portal

Currently, online traders engaged in the distance selling of goods are obliged to register for VAT in the EU Member State of their non-business customers.

As of 2021, the one stop shop, (similar to the MOSS, currently available for the sale of services electronically) is expected to be extended to the online sale of goods (distance sales).

This will be a significant simplification for online traders engaged in the distance selling of goods, since they will be able to handle the VAT obligations across the several member states via the use of an online portal, the "One Stop Shop" by submitting only one simple quarterly return. Consequently, such a reform will significantly reduce the vat compliance cost online traders currently encounter.

B3. Abolition of thresholds for imports

Currently, import into the EU of packages with value less than €22 per consignment is exempt from VAT. This exemption is expected to be abolished as of 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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