Online businesses who sell items to EU recipients should brace for a big headache beginning on July 1st. Last year, the UK enacted new fees for VAT payments as a result of Brexit. Now, the rest of the European Union has a big change coming to all sellers sending low-value shipments to member countries.
Wait…What is VAT?
A Value-Added Tax, or “VAT,” is a tax that gets imposed on shipments of goods being imported into foreign countries. In most cases, the international recipient is responsible for paying these fees. When they do, their country’s customs department hands the package off to them, and everybody goes home (somewhat) happy.
For a long now time, low-cost shipments going to the EU valued at €22 (22 euros) or lower didn’t get hit with any of these VAT fees. This was known as the de minimis threshold. However, under the new VAT rules for the EU, every shipment sent to the EU is subject to VAT fees beginning on July 1, 2021, no matter its value.
Breaking Down the New VAT Rules for the EU
The new VAT rules in the EU are more complicated than just getting rid of the de minimis threshold for low-value shipments. On top of ensuring that EU recipients pay VAT fees for any shipments they get from abroad, the new guidelines require:
- An electronic interface (such as a marketplace or your own online storefront) to clearly display the amount of VAT fees that EU buyers need to pay before they complete their order
- A customs form containing full and correct customs data, no matter the value of the shipment
- Submissions of monthly electronic VAT returns via the IOSS portal, and keeping records of sales facilitated by IOSS for 10 years
- Harmonization #’s for every item in your shipment. You can look up your product’s Harmonization #’s by typing your product into the Census Bureau’s search engine.
For the most part, the biggest thing you’re responsible for as the shipperr is making sure you include a Harmonization # in your customs form.
What Your Business Can Do to Prepare for the New VAT Rules in the EU
As an online seller, you’re not necessarily responsible for paying the fees yourself…so don’t sweat that! However, you can choose to present this information to help your buyers in the EU pay any necessary VAT fees at the point of sale. Here are some different ways for your business to be proactive.
Consider Registering for the Import One-Stop Shop
The purpose of the Import One-Stop Shop (IOSS)* is to facilitate and simplify the declaration and payment of VAT for packages going to the EU valued no more than €150 (150 euros). The IOSS facilitates the collection, declaration and payment of VAT for sellers sending goods to recipients in the EU. From what we understand, it’s entirely up to you if you want to offer this option to your buyers. On top of making this process easier for the seller, the IOSS also makes it easier for the buyer, who pays any VAT fees once at the time of purchase. That way, they won’t get hit with any surprise fees when their shipment is delivered. Whichever VAT rate they pay for their shipment depends on the country they live in.
If you (the seller) don’t register in the IOSS, your recipient may have to pay VAT fees plus a customs clearance fee sometimes charged by the courier at the moment the goods are imported in the EU.
Note: the new VAT rules are different for marketplaces like Amazon, eBay, Etsy, and Mercari. If you sell on a marketplace like these, then you don’t have to take any immediate action. Coincidentally, the EU treats marketplaces as suppliers. As a result, the marketplaces are responsible for paying any VAT fees for products sold on their platforms.
Your business can register on the IOSS portal of any EU Member State, and you may need to register in each member country in the EU. For more info, visit the IOSS website.
If You Ship a Lot, You May Need to Work with an Intermediary
Every EU member country has different VAT rates, and your recipients will likely be aware of the fees in their specific country. This said, collecting VAT fees on shipments going to different member countries a complex matter. Since this is the case, it may help to hire a VAT intermediary to handle this for your business, such as My Duty Collect.
One thing to remember is that working with an intermediary can cost quite a bit of money. Therefore, this option may only make sense if you’re sending hundreds, if not thousands of packages to the EU every year.
What Happens if Your Customers Don’t Pay VAT Fees at the Point of Sale?
Unless your buyers pay VAT fees when they complete their purchase, your recipients will need to pay these additional import duties when shipments reach their country’s customs departments. Ultimately, this could bottleneck customs departments and—you guessed it—cause deliveries to slow down to recipients in the EU.
Whether you register with IOSS or not, we recommend setting some expectations with your international recipients. This way, they’ll know that they need to pay these VAT fees (although international shoppers should already be aware of this), and that their packages might arrive a bit later than normal delivery timeframes.