The new EU value-added tax (VAT) rules took effect a few months ago on July 1. If you still aren’t clear, it’s a significant change that requires many vendors based outside the EU to start calculating and remitting VAT on a wide range of business-to-consumer (B2C) transactions involving customers residing in EU countries.
For companies that are newly subject to VAT requirements, it is crucial to understand what’s changed, what they need to do to adhere to the new rules, and what forms of automation can support their compliance efforts.
In terms of understanding, three points are important to keep in mind. First, the VAT rules changes reflect the EU’s move to a destination-based principle for taxation – similar to what now exists in the U.S. for e-commerce transactions as a result of Wayfair. When a company sells cross-border to a consumer, the transaction is now taxable for VAT in the country where the consumer lives. (Again, the rules changes apply to B2C transactions.) Second, these rules also apply to all sales by both EU and non-EU vendors for goods coming from outside the EU. This change eliminates the previous VAT import exemption for low-value consignments coming into the EU from another country. Third, marketplaces now qualify as deemed sellers and are therefore liable for the VAT on specific transactions.
One word suffices for describing what companies subject to these new VAT rules need to do: comply. Getting compliant may be challenging for some companies, especially for vendors based outside the EU and for online marketplaces – neither of those two groups of companies were required to calculate and remit VAT under the previous rules and sales thresholds. marketplaces were not required to calculate VAT as they were not the seller of the goods. Non-EU vendors could benefit from a VAT import exemption for goods valued €22 or lower, or import VAT was collected from the consumer by the courier.
I go into more detail on these sweeping VAT rules changes in a podcast with Multichannel Merchant’s Mike O’Brien. Our discussion provides context on why the rules are changing, covers actions merchants should take and examines the impacts of these requirements on businesses operating in the EU. We also highlight how technology solutions – including Taxamo Assure by Vertex – are helping companies manage this compliance burden.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.