The EU has introduced new VAT e-commerce rules for imports in order to enhance fair competition for EU businesses and reduce VAT losses which had previously been incurred. This was due to importation of goods with a value not exceeding €22 from third countries or territories, such as Hong Kong and mainland China. EU businesses did not benefit from such VAT exemption when selling goods in the single market, which was deemed to be unfair, and has therefore been abolished after June 2021.
The new VAT e-commerce rules introduce new obligations for marketplaces and platforms facilitating goods supply online regarding distance sales imported from third countries or territories in consignments of an intrinsic value not exceeding €150 (low value goods as defined in the Duty Relief Regulation (Regulation (EC) No 1186/2009)). The intrinsic value, for commercial goods, is the price of the goods themselves when sold for export to the EU customs territory, excluding transport and insurance costs, unless they are included in the price and not separately indicated on the invoice, and any other taxes and charges as ascertainable by customs authorities from any relevant document(s).
Two New Schemes
The new VAT rules introduce two new schemes particularly relevant to customs clearance for B2C internet or distance sales from third countries or territories to EU consumers:
- The rules have abolished the VAT exemption for imported goods below €22 as of 1 July 2021. Thus, all commercial goods imported into the EU from a third country or territory is now subject to VAT, irrespective of value; and
- The rules provide two new methods to collect VAT on goods in consignments of a value not exceeding €150. These are the Import One Stop Shop (IOSS) and “special arrangements [1]”. It should be noted that these two schemes cannot be applied for excise goods, namely, alcohol/alcoholic drinks; energy products and electricity; and tobacco products. Furthermore, in order to ensure that VAT is collected at import, from 1 July 2021, an import declaration is required for all goods entering the EU, regardless of value.
The IOSS
The first scheme is an Import One Stop Shop (IOSS) system whereby the supplier can fulfil all VAT obligations (reporting and payment) in one EU member state, either directly or via an intermediary appointed for this purpose. The VAT paid by the consumer to the supplier at the time of sale is declared and paid through a single IOSS VAT return on a monthly basis directly by the supplier or an intermediary. As a result, the actual import of goods into the EU is exempt from VAT. The IOSS is available to sellers making direct imported sales to EU consumers from their own website, or available to marketplaces/platforms which facilitate those supplies. The use of the IOSS is not mandatory.
Member states are required to compile a monthly listing of the total value of imports per IOSS VAT identification number in their territory for which a valid IOSS VAT identification number has been provided upon importation. The European Commission’s Surveillance system will be used for this purpose. Therefore, customs authorities must regularly send all relevant data from customs declarations to the Surveillance system to allow for the production of the monthly reports that the VAT legislation requires.
The tax authorities of member states will get access to the monthly IOSS reports directly from Surveillance. They will use such information for control purposes, by matching the value provided here with the that declared in the VAT return submitted by the holder of the IOSS VAT identification number. Thus, the IOSS is a monthly filing submitted to a tax authority in one nominated EU member state for declaration of import VAT due in all EU countries.
As the new e-commerce VAT rules introduce new obligations for marketplaces and platforms that facilitate online goods supply from third countries to EU consumers, Hong Kong sellers may like to know that sales via online marketplaces – such as Amazon,eBay,Kaufland, Media Markt and Otto – would be affected. For a non EU-based company, which does not have a warehouse in any EU member state, online marketplaces would now be responsible for calculating, collecting and remitting VAT on the sale of their low-value B2C imports into the EU from 1 July 2021 (in the event that the online marketplaces opt to use the IOSS, keeping in mind that use of the IOSS is not mandatory).
This is the case where the goods are ordered through any online marketplace, and where goods are delivered from inventory stored outside the EU in a consignment with an intrinsic value of up to €150 (therefore under the IOSS scheme). For the relevant imports, the marketplace essentially charges the buyer VAT at the rate applicable in the destination country at the point-of-sale and declares and remits it to the relevant tax authority instead of the seller.
Special Arrangements
The second scheme is intended primarily for economic operators who present goods to customs authorities and declare the low-value goods (on behalf of the consumer), such as postal operators, express carriers and customs agents, when the IOSS is not used. Under such scheme, the VAT becomes due on import in the destination member state only if it was effectively collected from the importer (i.e., the consignee of the goods), in order to avoid burdensome refund procedures. These economic operators pay the VAT amounts collected from the individual consignees for all imports during a given month. This global payment must be done by the deadline applicable to the payment of import duty in accordance with the Union Customs Code to the competent tax/customs authorities.
It should be noted that a new form of customs declaration has been introduced for free circulation of goods in consignments not exceeding €150 (so-called super-reduced dataset). This customs declaration only requires a minimum number of data elements (about one-third of a standard customs declaration full dataset). It will only apply to low value duty-free goods and private-to-private consignments up to €45 that are not subject to prohibitions or restrictions. It is hoped that the smaller number of data elements will also facilitate and speed up the process of dealing with a high volume of parcels. This customs declaration is available to any person – consumers, businesses, postal or express operators.
Both customs administrations and economic operators (particularly postal operators and couriers) have to adapt their IT systems to allow for the declaration of low value consignments.
The European Commission has produced a “Guidance for Member States and Trade” on the VAT e-commerce package. Hong Kong sellers are advised to examine this document carefully to learn more about the abovementioned concepts and the relevant changes from the old VAT rules for low-value distance sold goods (via the internet) to EU consumers.
Source: HKTDC Research, authored by Louis Chen
[1] Please refer to pp.49-54 of “Importation and Exportation of Low Value Consignments – VAT E-Commerce Package” for more details.