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No need to register VAT from 2021?

On 8 May 2020, because of the practical difficulties created by the lockdown measures taken to contain the coronavirus pandemic, the Commission proposed to postpone the introduction of new e-commerce VAT rules by six months. Once adopted by the Council, the rules will apply as of 1 July 2021 instead of 1 January 2021, giving Member States and businesses enough time to prepare.

Significant modification

Next year will bring some fundamental changes to the European VAT – no such event occurred in the last 20 years. Some sellers will no longer have to register to VAT in each of the countries they operate in – they will be able to report the sales performed across the EU in their home country alone.  The simplification is meant to support and increase cross-board sales. An important note here is that if the warehouses are located in another European country, the VAT registration will still be obligatory.

The EU legislator must try to keep up with the changes resulting from globalization and adapt VAT regulations to changes in trade. The purpose is on the one hand to make life easier for reliable entrepreneurs (no need to register in many EU countries by distance sellers), and on the other hand to avoid distorting competition between EU and third-country sellers (IOSS)

admits Renata Organek, VAT Director in KR Group

What will happen with VAT thresholds?

The VAT thresholds as we know them will disappear as soon as the reforms start functioning (there will be one uniform threshold – EUR 10,000). Additionally, a single EU VAT return – One Stop Shop (OSS) – will be introduced. It’s an extension of Mini One Stop Shop (MOSS) introduced in 2015 (but back then applied only to sales of digital services) OSS will allow the sellers to report the pan-EU sales in their home country.

Changes in practice

Firstly, the customer’s residence country VAT rate will be applied. Then the sellers will determine the correct VAT rate, and will be able to apply reduced or nil VAT rates, according to law of each member state (i.e. varying rates).

Due to frequent abuses on sellers’ side, the 22€ exemption on outside the EU import of small packages will be withdrawn by 2021. A new submission will be introduced instead – it’s called Import One Stop Shop (IOSS). Next year VAT will have to be declared at the point-of-sale for sales up to 150€ and then paid via IOSS – customers will be charged VAT in advance, not at customs or via delivery service. This is supposed to provide equality for EU and non-EU sellers – up to now the EU sellers were disadvantaged in this matter. The non-EU sellers will now have to register for IOSS in one of European countries to declare VAT on imported goods below 150€.

Another change 2021 is about to bring will affect marketplaces. Their task will be to charge and collect VAT.  The customer will be charged the VAT at the point of sale and then the marketplace will declare it – the seller won’t have to do it anymore. The benefiters of the change will be both EU and non-EU sellers – they will be able to deregister in some EU states.

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