It can be difficult to know where you stand regarding EU VAT changes and European tax laws. There have been sweeping changes implemented in recent years.
This blog breaks down the major updates, including the EU VAT reform, to help ensure your business is on the right path. Additionally, you can speak with our team of experts for personalised assistance with VAT compliance or have a look at our solutions for VAT compliance for e-commerce.
What is EU VAT reform?
To keep up with the digital age, the EU changed how its VAT system works in July 2021. The EU e-Commerce VAT Package was part of this. So was the One Stop Shop (OSS), which intends to make cross-border trade less of a headache.
With OSS, companies can declare and remit the VAT due on certain sales in a single language and within just one Member State tax administration.
OSS introduced three schemes:
- Import One Stop Shop (IOSS) for law value goods delivered outside the EU
- Union One Stop Shop (Union OSS) for intra-EU B2C deliveries of goods and services
- Non-Union One Stop Shop (Non-Union OSS) for non-EU to EU services, previously known as the Mini One Stop Shop (MOSS)
What are the latest EU tax laws and changes?
Prior to the EU VAT reform, e-commerce sellers of goods needed to have a VAT registration for each of the EU Member States that they traded in – providing they had a turnover above a particular threshold. The threshold was dependent on the country.
With the changes that arrived on 1 July 2021, these thresholds were replaced by a single, universal threshold of €10,000 for EU businesses. If turnover exceeds that figure, VAT must be paid in the Member State where the goods are delivered. Non-EU businesses have no threshold.
What is the current EU VAT rate?
While the EU’s lowest agreed standard rate is 15% as per the VAT Directive. Luxembourg has the lowest standard rate at 17%, whereas Hungary has the highest at 27%. Other countries fall within that range.
What has changed since July 2021?
On 8 December 2022, the European Commission proposed changes in relation to the VAT in the Digital Age initiative.
While nothing was been implemented at the time of publishing, the proposal offers up significant changes and is one of the more prominent developments in the history of VAT in Europe.
The Commission proposes changes to the VAT Directive, specifically affecting:
- Single EU VAT registration
- VAT treatment of the platform economy
- VAT digital reporting obligations and e-invoicing
Again, the regulatory change is yet to come into effect. It requires formal adoption by the Council of the European Union and the European Parliament, as well as a unanimous positive vote by the Member States but if approved these will include significant changes.
Do I now have to pay VAT on EU goods?
If your company is based in the EU then VAT is likely to be chargeable on both purchases and sales of goods within the region. Exceptions do exist, however.
Where VAT is charged depends on the type of supply and is determined by the EU’s place of supply rules which determine where VAT is due, i.e., country of supplier or country of delivery.
What is OSS and does it come with new tax regulations?
The One Stop Shop abolished distance selling thresholds that were in place and created a centralised electronic platform for VAT. The change means that where intra-EU supplies exceed the €10,000 EU threshold (no threshold for non-EU companies), VAT is due in the Member State of the delivery – regardless of the level of sales in that country.
European businesses can take care of all their VAT obligations for sales across the entirety of the EU through the OSS. The scheme allows for any VAT due to be accounted for in a single VAT return, making life easier for businesses that trade across the EU. Companies trading in the EU are eligible to utilise OSS, and there is also a non-union OSS scheme for businesses outside the EU for digital supplies.
Visit our OSS guide for more in-depth knowledge of the scheme.
Get in touch today to understand how ever-changing VAT e-commerce rules in the EU affect your business.
Still have questions? Maybe we have answered them already below:
Will VAT change when we leave the EU?
The most recent country to leave the EU was the United Kingdom. The UK hasn’t changed its VAT system however businesses selling into Europe have needed to change their business practices.
Is the UK still in the EU for VAT purposes?
No, the UK maintains its own VAT rate and tax system. Different rules apply for businesses in Northern Ireland.
Can EU countries change VAT?
Yes, an EU country can change its VAT rate within the guidelines set by the EU VAT Reform.