Introduction to European Value Added Tax (VAT) and the Impact of Tax Reform

The new EU tax law will officially come into effect on July 1, 2021, triggering major changes in the European VAT system. Regarding the changes in the new tax law, let me tell you what impact IOSS and OSS will have on sellers after the implementation of the new tax law.

01Introduction to European Value Added Tax (VAT)

When e-commerce platforms such as Amazon were first established, tax supervision of such e-commerce platforms in European countries was not perfect, resulting in a situation where goods sold on e-commerce platforms did not need to pay VAT.

However, with the improvement of tax regulations in EU countries, the Amazon platform has begun to force sellers to submit VAT tax numbers to improve tax supervision of sales. Value-added tax, by definition, is a turnover tax that targets the added value generated during the transaction of goods, and the ultimate bearer is the final consumer of the goods.

In other words, although sellers need to pay VAT in advance,VAT can be "passed through" to the end consumer by adding VAT to the goods. At this time, the role played by the merchant becomes the "collector" of the government's value-added tax.

02Major changes brought about by the new VAT policy

1. Europe will abolish the welfare policy of exempting import VAT tax for goods below 22 euros.

From July 1st, all goods with a value of less than 150 euros must declare VAT through IOSS. Sellers need to put the IOSS number on self-shipped packages.

2. E-commerce platforms are considered sellers and need to bear tax obligations.

Therefore, in order to reduce their own risks, e-commerce platforms will implement a sales VAT withholding and payment system starting from July 1, 2021. According to regulations, the seller is still the owner of the goods. Although he does not need to pay taxes himself, he still needs to make a normal VAT declaration.

3. The VAT declaration process is simplified, and there is no need to record remote sales limits.

Chinese sellers only need to register the VAT tax number of the country where the goods are stored.

In the past, many self-delivery sellers believed that there were remote sales thresholds and tax-free quotas. European sites did not have strict VAT tax number requirements for self-delivery, and you could still sell without registering a tax number. However, now the new tax law has directly cut off remote sales. Sales threshold and tax-free policy, self-delivered goods with a value of less than 150 euros and FBA will all be subject to VAT payment and withholding by the platform.

Understanding of IOSS and OSS

IOSS(The Import One-Stop Shop)：It is an import one-stop VAT electronic declaration system. Starting from July 1, 2021, the EU will cancel the tax-free quota for imports below 22 euros. E-commerce platforms must collect VAT from buyers when goods are sold, and declare monthly VAT through IOSS.IOSS VAT declaration is only for goods with a value less than 150 euros.. For example, if our Chinese sellers self-deliver to EU buyers, they need to declare using IOSS.

OSS (The Union One-Stop Shop):It is the EU's one-stop VAT electronic declaration system. OSS VAT is a new tax law system implemented in order to reduce tax fraud in the e-commerce industry in EU countries, simplify the VAT declaration process and protect local enterprises from fair competition. The OSS declaration system was implemented on July 1.

OSS will be applicable to the declaration of VAT for distance sales of products within the EU.When shipping from the European Union to EU buyers, you can choose which EU country to use the OSS system to declare in all 27 EU countries. Companies outside the EU are no longer affected by the distance sales limit and perform VAT accounting according to the tax rate of the receiving country. For EU local companies, EU distance sales are 10,000 euros (including all 27 EU countries) OSS VAT declaration is voluntary registration.

The changes in this new policy are very far-reaching, and will affect both self-shipping sellers and Amazon FBA sellers.

03Impact of tax reform

For European sellers:After the implementation of the new EU VAT policy, the most direct impact is the increase in operating costs. bigSome European site sellers may face a cost increase of approximately 20%.Profits may be half of the original or even less.

For operating stores:sellerFailure to performExisting tax responsibilities and obligations, low declaration or cessation of declaration, payment of VAT,This will lead to the risk of the account being banned from sales and the store being closed.

Generally speaking, taxation in Europe is becoming more and more unavoidable. This tax reform has completely closed some small loopholes for sellers to avoid tax, making tax compliance in Europe closer to perfection. Although the cost of VAT is placed here, the European website still has a large consumer market, and there are also some tough policies against Amazon, which are advantages to attract sellers to enter the European website. Reasonable and standardized VAT policies will make the European seller platform more Sound development.