VAT: agreement on simpler and more efficient rules for businesses that sell goods online

An agreement has been reached by the Economic and Finance Ministers of EU Member States on a series of measures to improve how VAT works for online companies in the EU.

The new system is expected to make it easier for consumers and businesses, in particular start-ups and SMEs, to buy and sell goods cross-border online. It should also help Member States to recoup the current estimated €5 billion of VAT lost on online sales every year.

The new rules will come into force progressively by 2021 and will:

  • Simplify VAT rules for start-ups, micro-businesses and SMEs selling goods to consumers online in other EU Member States. VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 annually. These measures will enter into force by 1 January 2019.
  • Allow all companies that sell goods to their customers online to deal with their VAT obligations in the EU through one online portal in their own language. Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.
  • Make large online marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses within the EU which can often be used to sell goods VAT free to consumers in the EU.
  • Address the problem of fraud caused by a previously misused VAT exemption for goods valued at under €22 coming from outside the EU which can distort the market and create unfair competition. Previously, fraudsters had been able to mislabel high value goods in small packages as having a value under the threshold of €22, making the goods exempt from VAT and creating a gap of €1 billion in revenues which would otherwise have gone to the budgets of EU Member States.

The One Stop Shop for sales of online goods is due to come into effect in 2021 to give Member States time to update the IT systems underpinning the system.

Further information can be found using the following links:

Q&A on VAT for e-commerce

Commission proposal for EU VAT reform

Action Plan on VAT – Towards a single EU VAT area

Digital Single Market strategy

Digital Single Market - Modernising VAT for cross border e-Commerce

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