To tackle fraud and ensure progressive cross-border trade, the EU has introduced new VAT regulation aimed at modernizing operating mandates and keeping pace with the ever-evolving e-commerce world. But the impact of the modernized VAT regime on order fulfillment is a major concern for e-commerce brands and their partners around the world.
An updated VAT regime: The new status quo
The new VAT regime brings significant change to global logistics shipping, ripping up the playbook to eliminate the complexities around VAT collections, as well as the cycle of never-ending costs. The four main changes brought about by the updated tax regime are:
1. Uniform turnover threshold within the EU
Instead of a country-by-country VAT threshold (as was the case with the previous VAT regime), the new VAT act introduces a blanket limit of €10,000 across all EU member states for businesses registered within the EU’s borders. An intra-community distance sale only occurs if companies exceed this threshold.
2. One-Stop Shop extended to consumer goods
The new tax regime extends the scope of the One-Stop Shop (OSS). Rather than targeting specific telecoms, broadcasting, and electronic items, the OSS now covers a much broader range of consumer products, while an Import One-Stop Shop (IOSS) has also been introduced for goods arriving from outside the EU.
3. No VAT exemption for low-value shipments
A distance-sale concept has come into the modernized tax regime, covering all goods. This nullifies the previous VAT exemption on small-value consignments under €22.
4. More responsibility for platforms
In certain cases, and especially where the IOSS is not available, other types of logistics service providers are responsible for facilitating import activities and collecting import VAT.
Effects of the updated VAT regime on e-commerce
The impact of the new VAT regime has been felt throughout the e-commerce segment, from manufacturers to end-consumers. The most important impacts include:
1. Most sales are subject to the tax rate of buyers’ countries
In addition to the fixed threshold of €10,000, the VAT rate for non-EU brands is now calculated based on inter-community distance sales, and depends on the specific rules applied in the member state that is the final destination for the goods.
2. VAT is now chargeable on all relevant goods
As mentioned above, VAT is now applicable on other consumer items, breaking from the previous system of tax exemptions for small-value consignments. The former VAT regime was unfavorable to EU-based sellers, who were forced to charge higher rates than their third-country counterparts.
3. New rules to regulate sellers
The new rules aim to bring clarity to cross-border e-commerce, promote transparency, and encourage sellers of all sorts to shy away from fraudulent practices and undertake fair market behaviors. The EU’s objective is clearly to sanitize the state of cross-border e-commerce, and logistics stakeholders are required to realign their operations with these changes to comply with legal requirements.
To minimize the hassle of complying with the updated VAT regime, e-commerce brands can outsource their logistics challenges to YunExpress, a professional cross-border e-commerce logistics service provider that is already accustomed to the new VAT regime. Drawing on over seven years’ experience and together with our partners, we are revolutionizing global e-commerce logistics by providing seamless solutions for cross-border e-sellers.