VAT on online sales – new regulations

VAT for online sales in Slovenia

VAT on online sales – new regulations

The European Union (EU) has adopted new regulations for VAT on online sales. In Brussels, they promise that VAT on online sales and shopping of goods and services will be more simple.

The new regulations, among other, extend the existing European portal (mini one-stop-shop, MOSS Scheme) for registration for VAT purposes for distance selling. They also establish a new portal for distance selling from third countries, the value of which does not exceed 150 eur. This will reduce VAT compliance costs for transactions between businesses and consumers.

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Elimination of VAT exemption for small shipments

In 2021, they will eliminate the exemption of VAT for shipments from non EU member state, such as China and USA. It is now considered that for shipments from non-EU countries, whose value does not exceed 22 eur, you do not have to pay VAT.

In addition, in Brussels they say this opens up a number of possibilities of abuse and fraud. About 150 million small shipments are imported without VAT and the current system can be misused, they explain. While businesses in the EU must charge VAT regardless of the value of the goods they sell, for the imported goods VAT can be exempted, and therefore its value is often displayed lower than it really is.

According to the new system, which will be enforced on January 1, 2021, VAT will have to be paid for each shipment that the buyer receives from third countries, regardless of its value, that is, even if the value is lower than 22 eur.

Collecting VAT on online sales

VAT will be paid in the Member State of the consumer. This will also ensure a fairer distribution of tax revenues between Member States.

On the basis of the new regulations the online platforms will also have to collect VAT on distance selling performed through them. Most of the goods that are imported for distance selling are currently entering the EU without VAT. That creates unfair competition for EU companies, they point out in Brussels. Frauds on VAT on online sales in the EU is estimated to be 5 billion euros a year.

With the one-stop shop, online traders will not have to register for VAT in each of the Member States in which they sell the goods. The Commission considers that, as a result, that represents a cost for companies of around 8.000 eur for each EU Member State in which they sell goods.

The new regulations will reduce the administrative burden on businesses by 95 percent. The Commission estimates that the one-stop-shop system will create a total savings of 2.3 billion eur for businesses. They expect for VAT revenues for Member States to increase by EUR 7 billion.

Significant simplification for start-ups and small businesses

The new regulations for VAT on online sales also provide important simplification for start-ups, small and medium-sized enterprises. A company whose online sales to other countries will not exceed 10,000 eur per year will continue use the regulations on VAT on online sales from home country.

More questions about VAT on online sales?

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