The EU is a broad and diverse market that presents many opportunities for sellers in non-EU countries. At the same time, member states have strong business ties with countries outside the EU. However, the EU’s taxation regime can sometimes pose challenges – especially when it comes to optimizing the sales done to or from third countries.
Below, we will explain some aspects of European B2C sales for EU-based companies and businesses from outside the union.
Imports into the European Union
Most items imported in the EU are subject to VAT, typically paid by the importer at the customs, together with the customs duties. However, low-value goods, specifically - consignments below EUR 150, are exempt from the customs duties but must still include a VAT percentage. The main difference between VAT and customs duties is that the latter is not deductible.
Importers in the EU can use the reverse charge VAT procedure or import VAT deferment in order to account for VAT. Import VAT deferment allows reporting VAT via two invoices and avoiding paying it at the border.
If a business operating from a third country would like to use the reverse charge VAT, it must have a licensed fiscal representative based in one of the EU countries that acts as a getaway for the business. The representative is required to do the VAT reporting and register the company operating outside of the EU for VAT. It is advised to use the services of a general fiscal representative who will take care of imports, Intra-Community, and domestic sales.
From 2021, importers are allowed to use the Imports-One-Stop-Shop scheme, specifically targeted at reporting imported low-value goods. The IOSS simplifies the reverse charge procedure with a monthly IOSS return. IOSS also allows a faster process of releasing goods in the EU member states.
Domestic and distance sales in the EU for third country business
Once the goods are imported and cleared, a company might want to begin making domestic sales. Even when operating outside the EU, the company will have to register for VAT in one of the EU countries (if a One-Stop-Shop program is applicable) or several member states. The company then becomes responsible for charging the right VAT percentage in each country where their customers are located.
Previously, European countries had varying VAT thresholds for distance (online) sales. Now, European companies making B2C distance sales in the EU face the unified VAT registration threshold of EUR 10,000 (total yearly turnover). However, non-EU companies distance selling to European customers have no threshold and should register for VAT in each target market immediately.
Perhaps the best news for remote sellers in the EU is the establishment of the One-Stop-Shop program that allows for simplified tax reporting and collection. Established in 2021, OSS enables opted-in companies to submit quarterly VAT reports and payments via the system to one European country, which later distributes the VAT collected. In addition, OSS allows registering for VAT in a single country instead of all states where the sales have happened.
Companies should keep in mind that OSS cannot be used to report domestic sales or stock transfers. This is because VAT collected from domestic sales must be accounted for in the country of origin’s VAT returns.
In a nutshell
Considering all of the above-described aspects of the European VAT regime, here are some of the main points European and non-EU companies should discuss with their financial advisers or representatives:
- Can and should I use import VAT deferment?
- Does my company benefit from the OSS and IOSS?
- What other tax-simplification methods could we use?
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