The European Union (EU) is making important changes to its value-added tax (VAT) rules, which come into effect on July 1, 2021. This will impact businesses that sell across EU country borders (also known as distance sellers) and businesses exporting goods to buyers in the EU.
These changes will lead to simpler procedures and reduced administration, as well as possible broader implications for how merchants conduct business in the EU. This guide provides an overview of the significant changes coming, how they will impact merchants selling to buyers in the EU, and how to update tax settings in Shopify to comply with these changes.
What are the changes to intra-EU distance sale of goods?
There are three major changes that impact the VAT threshold, the rate applicable for cross-border orders, and tax filing for EU businesses:
- Ending distance selling thresholds rules. Currently, EU merchants have to register for VAT in other EU countries as soon as they reach a certain country-specific threshold. For example, €100,000 for Germany and €35,000 for France. On July 1, these distance selling thresholds will be withdrawn. Cross-border sellers will be required to charge the VAT rate of the buyer’s country of residence from their first sale, unless the micro-business threshold applies.
- New EU-wide threshold for micro-businesses. There is a new exemption for micro-businesses established in one EU country with sales no greater than €10,000 in each of the last two years. Merchants who qualify for this exemption can continue to charge the local VAT rate of the EU country where shipment originates for all EU countries they ship to, and continue remitting to their local tax authority.
- One-Stop Shop (OSS) filing. Merchants can now file a single VAT return known as OSS filing that works for multiple EU countries, which does not require an individual tax registration for each of those countries. Merchants can use OSS to file and remit VAT for any EU country they ship to, provided it is not their home country, or a domestic supply in a country where they have a physical location or hold stock. For these noted countries, merchants should instead continue filing a local return. OSS simplifies the filing process and saves them from the trouble of registering in multiple countries. The merchant needs to submit an electronic quarterly VAT return via their domestic OSS portal and ensure they keep records for all eligible OSS sales for 10 years.
As of July 1st, 2021, Shopify will automatically update tax settings to charge the VAT rate of the buyer’s shipping country for sales within the EU. Merchants based in the EU who qualify for a micro-business exemption and wish to continue to charge VAT based on the rate of your home country, you’ll need to update your tax settings in Shopify to reflect this.
For those who do not qualify for the micro-business exemption, you have the option to either submit a single VAT return for all of the EU (One Stop Shop filing), or remit a separate VAT return for every EU country that you ship to (Country specific registration). Update your tax settings in Shopify based on the choice that makes the most sense for your business.Update Tax Settings in Shopify
What are the changes for businesses exporting goods to buyers in the EU?
There are two major changes that will impact the VAT threshold and tax filing for non-EU businesses:
- All orders shipped to the EU are now subject to VAT. Until July 1st, 2021, when buyers in the EU purchase goods shipped from a country outside of that region with a total value below €22, they are exempt from paying VAT. As of July 1st, 2021, buyers will be required to pay VAT on all purchases up to €150. Import VAT and duties will continue to apply on orders above this threshold. Merchants shipping goods to EU buyers from outside of the EU can choose to collect VAT on orders below €150 to simplify the buying and shipping experience for their customers. If merchants choose not to collect VAT on exports to the EU below €150, customers will be charged upon delivery of the goods by the carrier.
- Import One-Stop Shop (IOSS) filing. Merchants who choose to collect VAT on orders below €150 should use the newly introduced Import OSS (IOSS) to file a single monthly VAT return for all low value exports to the EU. Non-EU merchants opting to use IOSS may need to appoint a VAT intermediary.
As of July 1st, 2021, Shopify will automatically update tax settings to charge the VAT rate of the buyer’s shipping country for orders within the EU. This includes orders shipped from a fulfillment center in the EU to a location in the EU.
You have the option to either submit a single VAT return for all of the EU (One Stop Shop filing), or remit a separate VAT return for every EU country that you ship to (Country specific registration). Update your tax settings in Shopify based on the choice that makes the most sense for your business.
If you ship products to the EU from countries outside of that region and you wish to charge VAT on orders up to €150, you'll need to update your tax settings with your Import One Stop Shop VAT number which will enable you to submit a single VAT remittance for all of the EU.Update Tax Settings in Shopify
Frequently asked questions (FAQ)
1. How can I register for OSS?
Each EU member state will have an online OSS portal where you can register. This single registration will be valid for all sales to consumers in other EU member states where you don’t have a physical presence.
2. In which EU country should I register for OSS?
EU merchants must register in their country of establishment. Non-EU merchants should, in principle, register in the country where the transport starts. If goods are shipped from multiple EU countries, the non-EU merchant may choose the EU country where they want to register. Consult a tax professional to ensure you’re making the right choice for your business.
3. What should I do to use the OSS?
If you use OSS you should:
- Apply the VAT rate of the member state where the goods are dispatched to or where the services are taxable
- Collect VAT from the buyer on intra-EU distance sales of goods or on supplies of services
- Submit an electronic quarterly VAT return via the OSS portal of the member state where you are registered for OSS
- Make a quarterly payment of the VAT declared in the VAT return to the member state where you are registered for OSS
- Keep records of all eligible OSS sales receipts
- Update your tax settings in Shopify with your OSS VAT registration number
Registering for OSS simplifies the filing process and saves you from registering in multiple countries.
5. Does VAT apply to orders including tax or excluding tax?
The €150 threshold is exclusive of tax and is only for the value of goods (excluding transport and insurance costs, unless they are included in the price and not indicated separately on the invoice).
6. Why should I register for IOSS as a non-EU merchant selling into the EU?
For merchants who opt to collect VAT at checkout on low-value goods from buyers throughout the EU, IOSS will allow single return filing. Additionally, imported goods will likely be processed faster by the customs authorities. Without IOSS, shipments could be stopped at the border for valuation checks that may result in delivery delays and/or additional VAT assessments.
7. I am not sure how the recent EU VAT changes impact my business. What should I do?
If you are unsure of how these changes impact your business, you should contact the European Union or a tax consultant. You may also want to appoint a representative such as a lawyer or accountant responsible for your tax reporting and payment.
8. How can I get help to get VAT registered and file my VAT?
Here are a few service providers that can help you get VAT registered and file your VAT returns.
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