Navigating New EU VAT Reforms

Table of Contents

1. Introduction
2. Background of the VAT reforms
3. Three reasons for the new VAT system
   • Facilitating cross border trade
   • Combatting VAT fraud
   • Ensuring fair competition
4. The main changes in the new rules
   • Threshold for selling within Europe
   • Removal of the 22 euro threshold
   • Responsibilities of marketplaces and platforms
5. Impacts on businesses
   • Data collection and digitalization
   • Changes in tax obligations
   • Importance of supplier's participation
6. Optimizing your business for the new rules
   • Communicating with suppliers
   • Considering overseas warehouses
   • Staying updated and informed
7. Conclusion
8. FAQs
9. Additional resources
10. Contacting HyperSKU for assistance

New VAT Reforms: What You Need to Know

The European Union is implementing new Value Added Tax (VAT) reforms, set to come into effect on July 1st, 2021. These reforms aim to streamline the VAT process, combat fraud, and create a level playing field for online sellers within the EU. As an online entrepreneur engaging in cross-border trade with China, it is crucial for you to understand and prepare for these changes to minimize disruption to your business.

Background of the VAT Reforms

The decision to implement the new VAT reforms was made by the European Commission at the end of 2020. Originally scheduled for January 1st, 2021, the reforms were postponed to July 1st, 2021, due to the ongoing challenges posed by the COVID-19 pandemic. The reforms will apply to the entire European Union, with the exception of the United Kingdom.

Three Reasons for the New VAT System

1. Facilitating Cross Border Trade: The main objective of the VAT reforms is to simplify and facilitate cross-border trade within the EU. By establishing a unified system for collecting online sellers' information and VAT, the EU aims to remove barriers to trade and enhance the efficiency of transactions.

2. Combatting VAT Fraud: VAT fraud has been a significant issue within the EU, resulting in substantial revenue loss. In 2017 alone, it was estimated that the EU missed out on approximately $137 billion in VAT revenue. The new system seeks to combat fraud by ensuring transparency and accurate reporting of VAT obligations.

3. Ensuring Fair Competition: The EU aims to create a level playing field for businesses by addressing the issue of tax-free goods sold online, particularly those originating from China. Currently, goods priced below 22 euros are exempt from VAT and import duties, giving an advantage to sellers outside the EU. The new rules aim to eliminate this discrepancy and create fair competition.

The Main Changes in the New Rules

1. Threshold for Selling within Europe: Previously, the threshold for paying VAT within Europe varied by country, ranging from 35,000 to 100,000 euros. Under the new rules, if your total sales within the EU exceed 10,000 euros, you will be required to pay VAT according to the local VAT percentage of each country where you sell your products.

2. Removal of the 22 Euro Threshold: Currently, goods priced under 22 euros are exempt from VAT and import duties. However, under the new rules, this threshold will be eliminated. As a result, VAT will be applicable to all transactions regardless of the purchase value. The responsibility for VAT payment will shift to the seller, based on the country where the consumer is located.

3. Responsibilities of Marketplaces and Platforms: Marketplaces and platforms, such as Amazon and eBay, will play a crucial role in implementing the new VAT system. They will be responsible for capturing sellers' information and ensuring compliance with VAT regulations. The specific impact on dropshippers using platforms like Shopify is yet to be determined, but it is essential to stay informed about and follow the regulations set by your chosen platform.

Impacts on Businesses

The implementation of the new VAT reforms will have several impacts on your online business:

1. Data Collection and Digitalization: The new rules place significant emphasis on data collection and digitalization. The entire process of purchase, sale, and VAT payment must be documented and made visible. It is crucial to ensure that all relevant information about your supply chain, including suppliers, shipping details, and sales data, is accurately recorded to comply with the new requirements.

2. Changes in Tax Obligations: The new VAT system will entail changes in your tax obligations. You will need to accurately calculate and pay VAT based on the local VAT rate of each country where your sales exceed 10,000 euros. This may involve adjusting your pricing strategy and accounting processes to accommodate the new tax requirements.

3. Importance of Supplier's Participation: To avoid additional complications and costs, it is vital for your suppliers to participate in the new VAT system. They can sign up for the One-Stop Shop (OSS) system developed by the European Commission. By doing so, the supplier's information will be shared, allowing for the seamless flow of VAT between the seller, supplier, and consumer. It is crucial to coordinate with your suppliers to ensure they are prepared to integrate into the OSS system.

Optimizing Your Business for the New Rules

To navigate the challenges and maximize your business's compatibility with the new VAT rules, consider the following strategies:

1. Communicating with Suppliers: Engage in open communication with your suppliers to ensure they are aware of and prepared for the new VAT system. Verify if they are optimizing their data processes and if they have signed up for the OSS system. Collaborate closely with them to address any potential issues that may arise.

2. Considering Overseas Warehouses: With the changes in VAT rules, some businesses may opt for overseas warehouses to lessen tax burdens. This option may offer advantages such as reduced taxes and faster delivery times. Evaluate the feasibility of stocking certain products in overseas warehouses to optimize your operations.

3. Staying Updated and Informed: Stay updated with the latest developments regarding the VAT reforms. Follow reputable channels and resources, such as HyperSKU, to ensure you receive accurate information and guidance. Being proactive and well-informed will enable you to adapt swiftly to any changes and make informed decisions for your business.

Conclusion

The new VAT reforms set to be implemented by the EU will bring significant changes to the e-commerce landscape. Understanding the impacts and taking proactive measures to adapt your business to the new rules will be essential for success. Stay informed, communicate with your suppliers, and optimize your operations to navigate these changes effectively. HyperSKU is committed to providing resources and support to help you navigate the complexities of the new VAT system.

FAQs

1. Will the new VAT reforms affect dropshipping from China?

   • Yes, the new VAT reforms will impact dropshippers engaging in cross-border trade with China. It is crucial to understand the new rules, communicate with suppliers, and ensure compliance with the VAT obligations in each country where you sell your products.

2. How can I prepare my business for the new VAT system?

   • To prepare your business, communicate with your suppliers to ensure they are aware of and prepared for the new VAT system. Stay updated with the latest information, consider the use of overseas warehouses, and optimize your data collection and accounting processes to comply with the new rules.

3. Will the new VAT system increase costs for my business?

   • The new VAT system may lead to increased costs for your business. Additional investments may be required to comply with the new regulations. Moreover, VAT payments will need to be factored into your pricing strategy. However, the ultimate impact will depend on the specifics of your business and the actions you take to optimize your operations.

4. What happens if my supplier does not participate in the new VAT system?

   • If your supplier does not participate in the new VAT system, custom clearance and VAT payment will be your responsibility. This may involve additional costs and complications in arranging customs clearance. It is crucial to coordinate with your suppliers to ensure they are registered in the system to minimize potential issues.

5. How can HyperSKU assist with navigating the new VAT system?

   • HyperSKU is committed to providing resources and support to help online entrepreneurs navigate the complexities of the new VAT system. Contact us for personalized assistance, access to informative resources, and guidance on optimizing your business for the new VAT rules.

Additional Resources

• European Commission's Official Information on VAT Reforms
• HyperSKU VAT Reforms Guide