New VAT system for eCommerce from July 2021 on.

It may not be the most attractive topic to discuss on a blog about eCommerce, but it is no less important to be clear about all the legal issues.

We are not talking about whether you have to register as a freelancer to sell online, or even to hire an agency and let them take care of everything. There are changes such as this VAT that are so important that it is better to be up to date yourself (even if you delegate the procedures afterwards).

The first thing to say is that this regulation involves the member countries of the European Union and will affect online trade of goods and services within the framework of B2C (business to consumer or non-wholesale).

If you currently have an eCommerce that sells to other countries within Europe or plan to do so in the short term, you probably already know how the VAT issue currently works but, to refresh concepts, let's remember it.

At the moment, there are certain thresholds for remote sales that are not homogeneous. That is to say: each state decides what is the annual turnover limit for a foreign eCommerce before establishing the obligation to register for taxation in the country.

In most cases this limit is usually set at €35,000 (although some states such as Germany, Italy or the Netherlands raise it to €100,000).

So, in order to summarize before going into detail, the European Union has decided to create a single framework to balance criteria. As of July 1, 2021, this threshold is drastically reduced to €10,000 throughout the Union.

This means that we will now pay VAT depending on where the buyer is located, passing on the added value directly to the tax authorities of that State.

Well, most likely it does. Note that it involves the vast majority of cases, such as:

In addition to what has already been mentioned regarding the taxation limit, this change in VAT for eCommerce has a few more things that change.

The most relevant thing you should know is that a new figure appears. It is the so-called OSS (One-Stop-Shop). To be more precise, it already existed, but only for other types of businesses.

Thanks to it, it is possible to significantly simplify the number of procedures by unifying in the same space all the management that otherwise must be done with each of the public administrations involved. We will make a single VAT declaration.

What does not change is the settlement period, which continues to be quarterly, although, for this purpose, we will use a new form: 369, where we will break down the VAT amounts by country with the tax rates that apply in each of the territories. The settlement to the respective administrations will be made directly by the corresponding Tax Agency (in our case the Spanish one).

By the way, this is also relevant: the figure of the exemption of low-value goods disappears. Until the new VAT system for eCommerce comes into force, products with a value under €22 will continue to be exempt from VAT. Once this period has expired, they will be taxed as any other sale.

However, for imports of a value under €150, an optional special system is established to be able to pay tax through a single window, thus freeing postal operators.

Having said all this, it is important to emphasize one thing: to be covered by this VAT taxation model for eCommerce through OSS is completely voluntary, it is not a taxation determined by the European Union as we have seen in other cases (the RGPD on data protection, for example).

Is it advisable to change our VAT management system? This should be assessed by each company and tax department, but on paper the truth is that it seems a good idea to save time and resources in duplicated or triplicated procedures, notifications that do not arrive or are lost, training or external resources to deal with local taxes, different methodologies... and it has the advantage of being transparent for the client.