Shipping goods into EU after 1 July 2021: VAT will not make it easier

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E-retailers experienced a major disruption when the transitional period ended and the post-Brexit period began. The end of the transitional period meant that the EU VAT regime ceased to apply and EU-UK transactions started being governed by a new set of VAT rules. In July 2021, e-retailers will face another disruption when the E-Commerce VAT Package takes effect. The E-Commerce VAT Package is relevant for any trader who (1) sells goods to consumers in the EU (business-to-consumer situations) and (2) is involved (even indirectly) in the transport of the goods.

Although the E-Commerce VAT Package was designed to serve as a simplification, it can hardly be seen as one given the complexity of the new rules and the myriad of possible scenarios for importing goods into the EU. The correct VAT treatment of distance sales of goods imported from third countries (i.e. goods that were located outside of the EU at the time of sale and were imported into the EU as a result of the sale) will depend on whether:

  • the Member State of importation is the same as the Member State of destination where the consumer is located;
  • the seller or the customer acts as the importer of record;
  • the value of the goods is above or below EUR 150;
  • a simplification scheme (Import One Stop Shop, IOSS) is used;
  • an online marketplace has facilitated the sale.

When goods located in a third country are sold to an EU consumer, two VAT-relevant events occur: (1) supply (distance sale) of goods, and (2) importation of the goods into the EU. The following examples illustrate the application of the E-commerce VAT Package to such transactions.

Example 1: Goods sold to a German consumer are imported into Germany from the UK. The IOSS is used as the goods are below EUR 150. An online marketplace has not been involved.

The supply of goods will take place in Germany. German VAT will have to be charged at the point of sale by the seller. The importation of goods into Germany will be exempt. As the seller is using the IOSS, he will have to be registered in only one EU country and file one VAT return in which all his sales to EU consumers will be declared.

Example 2: Goods sold to a German consumer are imported into Germany from the UK. The IOSS is not used as goods are above EUR 150. An online marketplace has not been involved.

The place of taxation of the distance sale depends on the person that is liable to pay import VAT. If the customer acts as the importer of record, the distance sale is not taxable. German import VAT will be levied upon importation. If the seller acts as the importer of record, the distance sale is taxable in the Member State of importation (Germany). The seller must register and file a German VAT return to report the sale. Import VAT will also be levied upon importation.

Example 3: Goods sold to an Austrian consumer arrive in Germany from the UK. The IOSS is not used as the goods are above EUR 150. An online marketplace has not been involved.

The supply (distance sale of goods) will be taxable in Austria (Member State of destination). The seller must be registered in Austria and file Austrian VAT returns. If the seller acts as the importer of record, he will have to pay import VAT in Germany, but he will be able to deduct it in his German VAT return (provided that he is registered for VAT purposes in Germany) or claim it under the international refund procedure. If the customer acts as the importer of record, he will have to pay German import VAT and will not be able to deduct it (double taxation will arise as both Austrian VAT and German import VAT will be due on a single sale).

Example 4: Goods sold to an Austrian consumer arrive in Germany from the UK. The IOSS is not used although the goods are below EUR 150. An online marketplace has not been involved.

The supply (distance sale of goods) will be taxable in Austria (Member State of destination). The seller must be registered in Austria and file Austrian VAT returns. The goods cannot be released for free circulation in Germany – they will be placed under the transit procedure and declared for free circulation in Austria. Either the customer or the seller can act as the importer of record.

The above-mentioned examples illustrate the complexity of the new rules and the number of factors to take into account to determine the correct VAT treatment. While the E-commerce VAT Package simplifies some VAT areas (e.g. intra-EU distance sales), the same cannot be said about shipments of goods into the EU.