Remembering and fulfilling VAT duties is one of the most important steps in managing an E-Commerce business or Amazon shop. With that comes the task of continuously monitoring upcoming changes of VAT regulations in Europe and beyond. This is paramount in order to stay VAT compliant and successfully and legally manage an E-Commerce business long-term.
There are only a few changes in VAT regulation that are upcoming in the year 2022. They mainly concern sellers based in or involved in transactions with customers in Great Britain, as the Brexit complicated VAT compliance. Another reason for the relatively quiet 2022 is that 2021 came with enormous changes touching upon almost every point of VAT regulation EU-wide.
New EU-wide delivery threshold for cross-border transactions introduced in 2021
The first major change in VAT came with the introduction of a new cross-border delivery threshold for B2C transactions. Previously, country specific VAT thresholds dictated whether a VAT registration was required in a foreign EU country or not. The thresholds were usually set at €35,000 with the exception of Germany, the Netherlands, and Luxembourg, whose thresholds were set at €100,000.
If your yearly revenue generated through sales to end consumers in a certain country laid below the threshold limit, the sales were subject to the local VAT rates of your home country and were listed in your regular local VAT return. They were, therefore, treated as domestic sales. However, once your revenue generated through sales to end consumers in that country crossed the threshold limit, you were required to register for VAT in that country, foreign VAT rates needed to be applied, and foreign VAT returns had to be submitted on a regular basis.
Due to this system, E-Commerce sellers with a wide variety of customers from different European countries needed to continuously monitor several thresholds at once. The system also afforded opportunities for exploitation.
To combat both, the differing country-specific thresholds were replaced by a new limit of €10,000 on July 2021. The new threshold is not only considerably lower, it also applies EU-wide. This means the limit is reached by revenue generated to customers based in all European countries combined. Overall, the new threshold limit is reached much faster. Once that happens, you will have to register for VAT in all countries to which you deliver products in the course of B2C transactions, a time-consuming and demanding process. You also will have to use the VAT rates of the customer’s home countries and start filing regular VAT returns. A way to mitigate the enormous undertaking of being VAT compliant in several European countries at once is the newly introduced One-Stop-Shop.
New EU-wide VAT scheme One-Stop-Shop (OSS) introduced in 2021
You can register for the One-Stop-Shop in your home country, the country in which your business was established and initially registered for VAT. Once registered for the OSS, you implicitly renounce usage of the new EU-wide cross-border delivery threshold. This means that the foreign country-specific VAT rates are applicable from the first € of revenue onward.
However, all transactions are listed in a unified OSS returns, which is submitted in the country of OSS registration. Although the transaction files need to be sorted and filtered before submission, individual local VAT returns due on different deadlines are no longer necessary. Therefore separate VAT registrations are also no longer required once you’re registered for the OSS. The scheme considerably eases the bureaucratic burden for online sellers.
However, the One-Stop-Shop too has its limitations. It’s important to note that the new VAT scheme only applies to cross-border transactions. It also does not replace the VAT registration required due to storage in a country. All E-Commerce sellers who use fulfilment centres, for example Amazon sellers using Fulfilled-by-Amazon programs, still need to complete local VAT registrations in all countries in which their products might be stored or which are part of their chosen FBA program, respectively.
If you are taking advantage of a fulfilment provider and want to register for the One-Stop-Shop you need to know exactly which transactions need to be declared in the OSS report and which find their way into regular VAT returns. Sales of products which are delivered from a foreign storage facility to customers in that same country need to be listed in a foreign local VAT returns, as they do not cross borders. Deliveries from a foreign warehouse to customers in the home country need to appear in your domestic VAT returns because your business is registered here. Lastly, sales from a foreign storage facility to customers in a third EU-country, as well as deliveries from your home country to another EU-country cross borders and, therefore, need to be listed in the OSS return.
UK VAT changes for online sellers in 2022
The previous year brought with it lots of changes in VAT regulations for European online sellers, but the upcoming year 2022 is expected to be calmer. However, as mentioned before, some VAT-related changes are upcoming in Great Britain, where both the Covid-19 pandemic and Brexit have complicated the way toward VAT compliance.
Firstly, customs declarations for goods imported from Europe to the UK (with the exception of Northern Ireland) could be delayed since the Brexit. Starting on January 1st 2022, that is no longer possible. Businesses should prepare for this change by building in-house capabilities or hiring service providers to take care of their customs declarations. In turn, Intrastat reports for the arrival of goods are no longer necessary for most UK businesses. This does not change or negate the UK postponed VAT Accounting scheme, which allows businesses to postpone the payment of import VAT from the moment of import to the filing of regular VAT returns.
Another new British scheme is the Making Tax Digital initiative. The VAT procedure for Making Tax Digital will require sellers to keep digital records of all their VAT data, file VAT returns using appropriate software and ensure that all data is “digitally linked”. The new scheme starts on the 1st of April 2022 and will apply to all businesses registered for VAT in the UK with a revenue below £85,000.
On Dec 21st 2022, a last change benefiting most online sellers will be introduced. The currently valid UK regime penalising taxpayers who file VAT returns or make payments of VAT late, will be updated. The current regime has long been criticised for being unfair and ineffective and the new one is expected to be fairer, easier, and more consistent.
Lastly, the “New Payments Scheme for COVID VAT deferral”, which allows UK businesses to defer VAT payments from 2020 in interest free installments, will end at the end of 2022. All unpaid VAT amounts are then potentially subject to penalties or interest. This means that sellers and businesses should prepare payment plans as soon as possible. This change does not change or negate the UK postponed VAT Accounting scheme, which acts as a stand-in for the EU Reverse-Charge mechanism.
Everchanging VAT regulations
You now have reviewed all important recent and upcoming VAT changes in the EU and beyond. If you are interested in using the One-Stop-Shop but haven’t yet decided to take the plunge or rely on fulfilling regular VAT duties including the submission of regular VAT returns, don’t hesitate to contact Hellotax. Hellotax is a VAT service provider specialised in E-Commerce and Amazon FBA. They offer a software that easily sorts all transaction data into reports, detects applicable VAT rates, and receives and translates tax documents from various sources. They can also take care of all your registration and filing needs such as OSS reports, regular VAT returns, and Intrastat reports.
If you are an online seller active in the UK, either because you are based there or because you are selling and shipping products to UK customers, you should take care to remember all changes coming to UK VAT regulations in 2022. They generally do not only apply to businesses established in the UK. They apply as soon as you register for VAT in the United Kingdom, which you most likely will have to do. The UK is no longer part of the European Customs Union and deliveries crossing the EU UK border can’t be taken care of by the One-Stop-Shop. For the same reason, the UK delivery threshold limit also no longer applies independently of the newly introduced EU-wide delivery threshold.