EU VAT Expansion Toolkit
Deciding to expand into the EU can unearth some unexpected challenges for international businesses.
For brands with their sights set on the lucrative EU market however, the positives far outweigh the negatives. With statistics showing shoppers are consistently preferring to buy online, eCommerce sales in the EU are set to reach EUR 569 million in revenue by 2025.
Expansion may be on the horizon for your business, but when selling goods to the EU, VAT compliance is a non-negotiable element that must be considered. On July 1, 2021, new EU VAT legislation was introduced for eCommerce business to consumer (B2C) sales of goods and services.
We want you to get set up for success in the EU market in 2022, so we’ve collaborated with our partners at SimplyVAT.com and put together an EU expansion toolkit, so you can stay compliant and confident when launching in the European eCommerce market.
The One-Stop Shop (OSS) is split into two schemes, Union OSS and non-Union OSS.
Union OSS can be used by EU based businesses to report the VAT due on intra-EU sales of goods and services. It can also be used by non-EU established businesses to report the VAT due on the intra-EU sale of goods only.
Non-Union OSS can be used by non-EU established businesses to report intra-EU B2C sales of services only.
If your business intends to store inventory within the EU for onward sale to EU customers, OSS is the perfect tool to ensure you stay compliant whilst selling goods and/or services cross-border.
In practice, the process of OSS is:
Register online where you are established (EU businesses) or in a country where you hold stock (non-EU businesses).
Use OSS to report eligible supplies and charge local VAT rates according to where your customers are based.
Provide a single quarterly VAT return to the member state in which you are registered.
The member state will then sort and send the correct VAT amounts to the other member states where you also sell.
OSS can effectively cut down your VAT admin time and saves your business registering in each member state where your customers are based which can be very costly.
Our partners at SimplyVAT.com can help you get your business registered for EU VAT.
The Import One-Stop Shop (IOSS) is for both EU and non-EU businesses and marketplaces to report the VAT due on B2C distance sales of imported goods to EU customers. The IOSS scheme will only apply to consignments below EUR 150 - anything above this will be subject to import VAT and standard customs procedures.
In practice, the process of IOSS is:
Register for IOSS and choose a member state in which you would like to be registered. EU established businesses must register in their country of establishment.
Charge local rates of VAT at point of sale based on where your customers are located if your consignment value remains below EUR 150.
Report your collected VAT via a monthly IOSS return to the member state in which you are registered through an intermediary, or established.
IOSS is optional for non-EU sellers, but it’s an excellent tool to make collecting VAT from your EU customers simple when distance selling in Europe.
EU fulfilment centres
If you’re considering moving goods to be closer to EU customers, a fulfilment centre might be a good choice. For non-EU businesses, using a fulfilment centre means that goods can be despatched faster, and your brand can improve customer satisfaction.
In order to ship goods to the EU, you will need to complete a customs declaration for each consignment you send. You will also be responsible for covering any customs duties/import VAT, but you will be able to claim this import VAT back via your foreign VAT return to the destination where your stock is held.
Once your stock has arrived at the EU fulfilment centre you can start distance selling throughout the EU. Using a fulfilment centre can be a great tool when expanding to the EU market; however, you must remember that if you hold stock in an EU country, for example France, and make sales to any FR customers, you will need to account for this VAT through your French VAT registration.
For sales to customers outside of France made from your FR fulfilment centre, you will need to register in each country where your customers are based or register for the Union One Stop Shop in France.
In the EU there are lots of country-specific marketplaces like Beslist or Cdiscount, that offer both EU and non-EU brands niche spaces to gain popularity. Although eBay and Amazon are still favourites, using a marketplace that is popular in a particular EU country can be beneficial for businesses looking to target a specific customer pool.
Since July 2021 marketplaces are expected to take responsibility for collecting and reporting VAT from EU consumers on behalf of online sellers. Currently, marketplaces are expected to fulfil this role in certain scenarios:
Distance sales of goods imported into the EU with a value up to EUR 150.
Supply of goods to EU consumers when the goods are already located within the EU and the seller is based outside of the EU, irrespective of the value of the goods.
In these scenarios, the marketplace will then be considered the ‘deemed supplier’ of the goods and become responsible for collecting VAT from your customers. Using a marketplace can relieve you of some VAT administration and so could be a great tool to begin with when expanding into the EU.
VAT rate checks
Now that VAT is due where your customers are based throughout the EU, VAT rates are going to be a key area of consideration for your business. VAT rates throughout the EU vary from country to country, ranging from 17 - 27%. For each sale you make to EU customers, you will need to charge the correct rate of VAT for your product and the country of destination. This may mean altering prices to account for higher VAT rates so that your margins are protected.
SimplyVAT.com offers international businesses VAT rate reviews so that you know exactly how much VAT you should be applying to your products when selling in the EU. This can be an invaluable tool so that you don’t overcharge your customers and harm your brand. Plus, they will discuss your specific products to determine the correct rates for you, wherever you sell in the EU.
Expand into the EU today
Expanding into the EU is exciting for growing brands and has shown fantastic results for companies internationally. Being prepared for what cross-border trade brings is essential to the success of your global expansion. We hope this EU VAT toolkit has given you an idea of the tools you have at your disposal.
SimplyVAT.com is an Airwallex partner. To learn more about how they can help you get VAT compliant, get in touch with their team.
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