In 2021 the VAT on online sales changes

The modifications in the current regulations will affect all electronic commerce and will apply from the second half of 2021 in all the States of the European Union.

If you have an online store, it is important that you are up to date with the legal requirements of electronic commerce. This year, for example, some news regarding VAT will come into force. Here we explain more.

Why the changes?
In the first quarter of 2020, in Spain alone, electronic commerce exceeded 12.2 billion euros, a figure that represents 11.6% more than the previous year. In fact, the average year-on-year growth of the sector is between 20 and 30%.

The increasingly rapid increase in online consumption, together with the unclear current conditions regarding e-commerce fees, have led the European Commission to simplify the process of cross-border tax collection, in order to avoid losses of income from taxes.

How is VAT taxation at the moment?
Until June 30, 2021, e-commerce transactions with countries outside the EU are exempt from VAT. On the other hand, in intra-community operations the VAT of the country of origin is applied, unless the total annual turnover to an EU State amounts to a certain amount that each country establishes independently. If this figure is exceeded, it is compulsory to register with the fiscal body of the specific country and tax the tax according to its conditions.

For example: if a Spanish online store invoices German customers more than € 100,000, it has to register in Germany for tax purposes, invoice with the German VAT rate and make the corresponding settlement there.

On the other hand, until the second quarter of 2021, imports whose cost is less than 22 euros will be exempt from VAT.

When will the changes go into effect?
Although the changes were planned to be applied as of January 1, the new obligations will finally come into force on July 1, 2021. These will bring with them three major changes in the field of taxation for online businesses:

Elimination of thresholds in Internet sales.
End of VAT exemption on importing shipments of low value.
Responsibility for the collection of VAT on marketplaces for distance sales of imported goods from third territories or third countries.
What will VAT tax be like from July 2021?
Once the European directive becomes effective, the following rules will have to be applied.

Elimination of thresholds in online sales

A single amount of 10,000 euros per year is established in transactions with any Member State. In other words, companies that receive online orders from outside their country for a total amount equal to or greater than that amount must invoice with the VAT rate that is applied in the destination country.

However, they will not have to register with any foreign body, but will be able to file settlements in their own country through a new one-stop-shop system. This one-stop shop is a web portal through which VAT can be declared and paid electronically: the system is in charge of remitting the amount collected to the corresponding Community State.

In any case, it will continue to be mandatory to apply the different VAT rates and, when billing falls below the threshold of 10,000 euros, the tax rate of the place of origin will continue to apply.

End of the VAT exemption on the importation of shipments of low value

The new regulations will repeal the current VAT exemption for small shipments of less than € 22. Thus, all imports coming from outside the EU, regardless of their value, will be subject to the VAT of the Member State of destination.

However, the exemption from paying customs duties will be maintained for imports that do not reach € 150.

Responsibility for VAT on sales on marketplaces

Finally, marketplaces or sales platforms (eBay, Amazon, etc.) will be considered sellers and, therefore, will have the duty to manage VAT when the user company is not in the EU. It does not matter if they are the direct providers or if they act as intermediaries. However, sales to the marketplace will be exempt from tax.

Conclusions on the new tax obligations
The main objective of this VAT reform at European level is to prevent cross-border fraud, while simplifying red tape and achieving greater consistency by paying VAT to the final consumer’s country.

For online stores, however, this change is a challenge, as they must adapt to new practices. If you have doubts, we recommend you to friends of Online Gestoría, who in the past have already collaborated with Escuela de Internet.

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