The European Union (EU) has important changes to its value-added tax (VAT) rules, coming into effect on July 1, 2021. Similarly to previous VAT changes, these affect merchants who sell across EU borders, as well as those who export goods into the EU.

These changes are primarily targeted at simplifying the process, including the creation of a new filing method, One-Stop Shop (OSS) for those who sell in multiple EU countries. This guide provides an overview of the impact, with some basic information on updating your tax rates to comply with these changes.

What changes are relevant to EU-based merchants?

• Threshold rules end for distance sellers (EU-to-EU). Before July 1st, sellers had to register for VAT in each EU country when they reached a threshold, and these thresholds were country-specific. On July 1st, these thresholds will be withdrawn, simplifying transactions as sellers are required to charge VAT rate of the buyer’s country of residence from the very first sale (unless micro-business threshold applies). 

• Micro-business EU-wide threshold. As of July 1, a new exemption will exist for micro-businesses established in one EU country with sales no greater than €10,000 in each of the last two years. Those who qualify for this exemption may continue to charge local VAT rates of their shipment origin country for all EU countries they ship to, and remit to local tax authorities.

• One-Stop Shop (OSS) Filing. Before July 1st, merchants were required to hold a tax registration for each EU country in which they did business. On July 1st, merchants will now be able to file a single VAT return, known as an OSS filing, that covers multiple EU countries. Merchants may use OSS to file and remit VAT for any country they shop to, excluding their home country and domestic supply for countries in which they have physical location or hold stock. For those excluded countries, merchants should continue filing a local return, as before.

What changes are relevant to merchants exporting goods to EU buyers?

• All orders shipped to the EU are now subject to VAT. Before July 1st, buyers purchasing and importing goods to the EU were exempt from paying VAT if their shipment had a total value below €22. On July 1st, buyers will be required to pay VAT on all such purchases up to a total value of €150, with the existing import VAT and duties applying above this threshold.

• Import One-Stop Shop (IOSS) filing. Merchants exporting to EU countries who’ve opted to collect VAT on orders below €150 should use the new Import OSS (IOSS) to file a single monthly VAT return for all below-threshold exports to the EU. Non-EU merchants opting to use IOSS may need to appoint a VAT intermediary.

Frequently asked questions (FAQ)

X-Cart and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making any decisions regarding tax registration, filing, and remittance.