What Online Sellers Need to Know about VAT in Europe in 2022

Taking care of your VAT duties is one of the most important tasks in the day-to-day life of ecommerce entrepreneurs and Amazon sellers. Depending on your home country, these duties arise as soon as you start selling your products or once your revenue reaches a certain threshold limit. You’ll have to register for VAT, submit regular VAT returns, and, of course, pay the VAT debts to the responsible tax authorities.

If you don’t fulfill your obligations the right way or, often worse, too late, you will be subject to penalties that can seriously harm your bottom line and your entire business. Therefore, you should always keep up-to-date with recent and upcoming changes in VAT regulations.

Moreover, with globalization and integrated marketplaces, the number of VAT duties to take care of increases. If you sell to customers in a variety of countries, you will have to fulfill VAT obligations in each of them. The whole process is complicated by the fact that each country follows its own regulations, formats, and deadlines and, of course, implements its own changes.

For example, the upcoming year 2022 is characterized by a lot of changes in VAT regulations in the United Kingdom.

VAT Changes in the UK in 2022

Even though the United Kingdom is no longer part of the European Union, it remains a prime marketplace for online sellers. As such, changes in its VAT regulation impact not only UK businesses but also EU sellers and ecommerce entrepreneurs which sell and ship products to customers across the canal. Upcoming VAT changes in the UK are mainly due to Brexit and a continuous effort to simplify the processes for sellers active on integrated marketplaces such as Amazon.

UK VAT changes due to Brexit

Since Brexit, customs declarations for goods imported from Europe to the United Kingdom could be delayed. This applied to imports into all parts of the UK, with the exception of Northern Ireland which continues to be part of the European Customs Union. Starting January 1st, 2022, this is no longer possible and businesses should prepare for this change by building in-house capabilities or hiring service providers. In turn, Intrastat reports for arrivals are no longer necessary for most UK businesses.

But this is not the only change concerning imports into the UK. The Postponed VAT Accounting scheme was introduced in January 2021. The scheme allows businesses to declare and immediately recover import VAT in their regular VAT returns, instead of paying it upon arrival in the UK and reclaiming it later. The Postponed VAT Accounting scheme was conceived to prevent businesses from suffering negative cash flows by suddenly having to pay import VAT before using or reselling products in absence of the EU Reverse Charge Mechanism.

UK Making Tax Digital for VAT procedure

Another big impact on VAT regulations has been the new Making Tax Digital procedure, part of a plan by the UK government to become the most digitally advanced tax administration in the world.

Businesses with a turnover above the UK VAT threshold of £85,000 are required to register for VAT in the UK and are also required to follow the Making Tax Digital rules. This means that they have to keep digital records of everything, ensure their data is digitally linked, and have to use the new software to submit their VAT returns.

Businesses with a turnover below the UK VAT threshold of £85,000, in general, don’t have to register for VAT in the UK. If they are not registered, they can join the Making Tax Digital service on a voluntary basis. If they are registered on a voluntary basis they will be required to follow Making Tax digital rules starting in April 2022.

Other VAT changes in the UK

But that is not all! More VAT changes are coming up in the UK toward the end of the year. The currently valid regime for penalizing taxpayers who file VAT returns or pay UK VAT debts late has long been criticized for being unfair and ineffective. On the 31st of December 2022, a new regime will be introduced. While not many details about the new fines and penalties are known yet, the new system is expected to be fairer, easier to navigate, and more consistent.

Lastly, a change in VAT regulations due to COVID-19 was recently reversed. The “New Payments Scheme for COVID VAT deferral” system allowed businesses to defer VAT payments from 2020 in interest-free installments. This scheme was intended to aid businesses in dealing with the changing environment and business practices during the pandemic. However, the system will end in 2022. All VAT amounts or deferred installments had to be paid by the end of March 2022. Otherwise, they may be subject to penalties and interests.

Of course, similar Covid-19 related changes to VAT regulations were also implemented and later reversed in the EU. However, all reversals of VAT rates and more were overshadowed by the introduction of the One-Stop-Shop, a new EU-wide VAT scheme in 2021.

Relevant Recent VAT Changes in the EU

The One-Stop-Shop or OSS was introduced on July 1st, 2021, and changed the landscape of VAT regulations across the EU in a big way. Plainly speaking, it allows B2C distance sellers to file their returns for VAT owed to foreign EU countries and pay that VAT in their home country. While it’s a voluntary procedure that sellers can choose to take advantage of or choose to ignore, it was accompanied by some other changes in VAT regulations that made the One-Stop-Shop that much more attractive.

New EU-wide VAT Return Procedure with OSS

The VAT duties that you as an online seller have to fulfill stay the same with the One-Stop-Shop. You still have to register, file returns, and pay VAT. However, the number of duties and deadlines to follow, as well as the location of fulfillment change.

If you want to use the One-Stop-Shop, you will have to register for OSS in your home country. Non-EU companies can take advantage of the procedure as well, by registering in one of the EU countries in which they are registered for VAT.

Once you sign-up, all your products, and transactions are immediately subject to country-specific value-added taxation. You will need to apply the VAT rates of the country in which your customer, the end-consumer, is resident. Therefore, you might sell the same product to two different consumers in two different countries for different gross prices.

The advantage of OSS becomes clear when it’s time to file VAT returns. Instead of compiling and filing returns in each country to which you distance sold and delivered products, you can list all transactions in a unified OSS return. This return, also called OSS report, is then submitted in the country of OSS registration, usually your home country. You will also pay all VAT payments to your home country’s tax authorities, which then redistribute the correct amounts to foreign tax offices based on your OSS report.

Although all transaction files need to be sorted based on country of origin and destination as well as applied VAT rate — an often tedious process — you will no longer need to monitor different deadlines or submit reports in foreign languages. Since you are not filing returns, VAT registrations in various countries are also no longer necessary.

However, the One-Stop-Shop too has its limitations. The new EU-wide VAT scheme only applies to B2C cross-border transactions. It is not applicable to transactions with business customers. The procedure also does not apply to sales and deliveries which don’t cross borders and the OSS registration does not replace VAT registrations necessary due to storage.

If you are an Amazon seller using Fulfilled-by-Amazon programs and Amazon fulfillment centers across Europe or you are storing your products in a foreign EU country independently, you will still need to register for VAT in those countries in which your products are or might be located. This does, however, not mean that you can no longer take advantage of the One-Stop-Shop. You will simply need to know exactly which transactions are declared in which return or report.

Sales of products delivered from foreign warehouses to customers in that same country, for example through an FBA program, need to be declared in a local foreign VAT return, as the deliveries do not cross borders. Sales of products delivered from foreign warehouses to customers in your home country need to be declared in a domestic VAT return because it is the country in which your business is registered.

Lastly, only the sales of products delivered from your home country across the border to foreign customers and delivered from foreign storage facilities to customers in third EU countries can be declared in the OSS reports. All of these deliveries cross borders and are subject to varying VAT rates and all of these VAT debts can be paid in your home country.

The advantageousness of the One-Stop-Shop procedure varies from business model to business model. If you only deliver from your home country to customers EU-wide, the OSS can decrease your workload considerably. However, if you store your products in a lot of EU countries, the OSS might not be for you. In any case, the compiling and filing of OSS reports is a special task in itself.

A solution comes in the form of hellotax’s worry-free OSS package. hellotax, a VAT service provider specializing in ecommerce, offers an OSS software that monitors your transactions and automatically compiles OSS reports for you. Their team of local tax accountants not only advises you about the usability of OSS for your business, but they can also register you and file your OSS reports and any other necessary VAT returns for you.

Changes in EU Delivery Thresholds

So why jump on the OSS train if the new procedure might complicate matters for you and the compiling of OSS reports is such a tedious task? The answer comes in the form of the new EU-wide delivery threshold.

Prior to the introduction of the One-Stop-Shop, each EU country set its own delivery threshold, usually €35,000 or €100,000. Once your revenue through sales to a country’s consumers crossed their threshold, you had to apply their VAT rates, register for VAT, and regularly submit VAT returns. Prior to crossing the threshold, sales were treated as domestic, your home country’s VAT rates were applied and you could declare those sales domestically.

A lot of sellers never actually crossed the thresholds and, therefore, only had to worry about VAT compliance in their home country. However, on July 1st, 2021 the country-specific thresholds were replaced by an EU-wide threshold of only €10,000. This new threshold is not only much lower but it is also crossed by all EU cross-border sales combined.

While sellers now no longer have to monitor several thresholds at once, they are in danger of crossing the new one much quicker and becoming subject to the VAT rates in a variety of countries at once. Therefore, the new One-Stop-Shop is the only viable solution for them.

New Options for Online Sellers

It’s important to always keep an eye on upcoming VAT regulation changes and take advantage of recent VAT changes that decrease the bureaucratic burden. Across the EU, sellers now have the option to either continue with the status quo reporting, although they need to start worrying about VAT compliance much sooner thanks to the new EU-wide delivery threshold. As an alternative, they can take advantage of the One-Stop-Shop procedure.

Of course, the OSS is not only good news for multinationally storing ecommerce entrepreneurs such as Amazon sellers. However, the fact that the One-Stop-Shop complicates matters for these types of businesses is a well-known problem and much-discussed issue. Experts expect adjustments to the new VAT scheme in the future, which solves these problems.

On the other hand, Amazon is starting to improve its services by itself to combat difficulties caused by regulation changes. For example, they have recently updated one of their FBA programs to enable easy selling across the UK EU border once again. Here is hoping that they will improve the OSS situation for their FBA sellers as well.