The impact of the e-commerce rules on your VAT registrations

The sale of goods and services to consumers within the European Union (EU) can lead to VAT registration obligations in different EU countries. As of 1 July 2021, the new rules regarding e-commerce will enter into force. We have prepared an overview of these changes. These changes have been introduced with a view to gaining more control of tax revenues, but also to offer a simplification for suppliers and service providers.

Compared to the current situation, the main simplification is that suppliers and service providers will only need to register for VAT purposes in one EU country, but can then supply goods and services to consumers in all 27 EU countries! In this article, we will discuss the impact of the new legislation on VAT registrations in the EU.

In which situations do the new rules apply?

The new rules concern the sale of goods to consumers, and the provision of certain services to consumers. Under the current rules, such transactions could even lead to 27 VAT registrations, and VAT returns in each of these countries. This poses a significant, and often costly, administrative burden for businesses. The new rules will solve this problem. As of 1 July 2021, businesses can report all distance sales and services to consumers in other EU countries, by means of a single return, the so-called One Stop Shop (OSS) return. Local VAT returns will only be required for local sales and services. For more information on the specifics, and how to register for the OSS, please read our explanation here.

Established outside of the EU: do I still need a VAT registration?

If you are established outside of the EU and only provide services to consumers, you will no longer need any VAT registrations other than the OSS registration. All your activities can be reported by means of the OSS, and if local VAT is charged to you, you can separately apply for a refund of this VAT. However, there may be certain reasons why we would advise you not to register for the OSS, but rather to register for VAT purposes locally. Cashflow considerations may be such a reason, for example if you have large amounts of VAT charged to you, and you also have a high turnover in a certain EU country. Such considerations may differ from country to country.

Regarding supplies of goods, the OSS is only intended for distance sales of goods (goods sent from one EU country to a consumer in the other EU country). This means that if you also sell to consumers locally, you cannot report these sales in the OSS, and you will also need to register for VAT purposes in the EU country concerned. This may seem like a lot of work, as you simultaneously have one local VAT registration and one OSS registration. However, in our experience, if you also import goods into that EU country, filing a local VAT return can be beneficial to your business. Additionally, this allows you to perform other activities in that EU country, such as selling goods to retailers and distributors.

What should I do about my current VAT registrations?

First of all, analyse and map your supply chain to find out where you can use the new VAT rules. At the same time, you can determine which VAT registrations are no longer needed. Next, you will need to draw up a schedule, whereby it is essential that you determine whether or not your business can be organised in such a way that the new rules can be applied as of 1 July 2021, or whether this can only be done from a later moment (this is because the possibilities of retroactive application are quite limited). Once you have determined when you can start using the new rules, you will need to deregister in the EU countries in which a VAT registration is no longer needed.

It is crucial that you start preparing on time! If you have any questions about the new rules, or if you would like to discuss the opportunities for your business, please feel free to contact us.

This content was published more than six months ago. Because legislation and regulation is constantly evolving, we recommend that you contact your Baker Tilly consultant to find out whether this information is still current and has consequences (or offers opportunities) for your situation. Your consultant will be happy to discuss the latest state of affairs with you.