You may have heard about the new EU updates for VAT e-commerce that will apply from the 1st July 2021. The EU hopes this will make trade easier between the individual member states.
In this article, we’ll cover the most important changes that will come with the new VAT regulation, how it might affect you, and what Jimdo is doing.
This article doesn’t constitute legal advice. If you have any questions or are unsure about any legal issues, we recommend contacting a legal expert.
Overview of the new EU rules for VAT
The new rules come into effect on July 1st, 2021, and are part of the “VAT e-commerce package.” The idea is to simplify cross-border selling within the EU and help prevent VAT fraud. So there’s now an EU-wide regulation as to when you have to charge which VAT rate.
Where might the new rules apply?
Generally, nothing changes for sales in your own country. However, for sales abroad, the EU has introduced a threshold of €10,000 euros in annual turnover to other EU countries. This only applies to sales to private individuals (ie. “business to customer” or “B2C” sales). Depending on whether your sales are above or below this threshold, different rules may apply.
Does this impact the regulation for small businesses?
The VAT e-commerce package doesn’t affect the regulation for small businesses. Sellers who use this regulation are still not required to charge or display VAT rates to customers.
Note: The VAT e-commerce package contains a whole range of different measures. Here we will focus on one of the main aspects: cross-border online trade with other EU countries and sales to end consumers (B2C).
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VAT on annual sales under 10,000 euros (with an example)
Sellers who generate less than €10,000 per year in B2C sales across other EU countries can continue to apply the VAT rates of their country. Here’s an example:
If a retailer sells knitwear through their German-based online store and a customer with a delivery address in the Netherlands buys something, the customer pays the German VAT rate of 19%, even though the Netherlands charges 21%. The retailer then gives this 19% VAT to the responsible tax office as usual.
VAT on annual sales over 10,000 euros (with an example)
The regulation will apply from July 1st for annual sales of over €10,000 generated with cross-border sales to other EU countries. As mentioned, nothing will change for domestic sales. Online sellers can keep charging the VAT rate of their own country. However, if customers from other EU countries buy something from you, you would then charge the VAT rate that applies to that product in the buyer’s own country.
Back to our earlier example, for a customer from the Netherlands, the retailer no longer charges 19% VAT, but the usual 21% in the Netherlands. The retailer then reports this to the Tax Office via the One Stop Shop (OSS) process. You can read more about this below.
On the official European Union website, you’ll find an overview of all VAT rates across the EU.
Tip: For store owners who sell the majority of their goods to an EU country with higher VAT rates, it’s advisable to include this difference in your product prices.
Do I have to display the VAT that applies?
We don’t believe it’s necessary for you to display the VAT rates in your shop. It’s enough to add “incl. VAT” to your prices as shown below. Lots of other online store platforms have used this approach.
What about invoices?
Different rules apply to invoices, which depend on a number of different factors. It’s best to ask a legal expert whether you have to state the VAT rate on your invoices.
What is the One Stop Shop (OSS)?
The One Stop Shop is an EU online process you can use to enter your sales and the associated VAT amounts and rates every quarter. If you’re based in Germany it runs via the Federal Central Tax Office (BZSt).
Back to our example from before, if you charged a Dutch customer 21% VAT, this is where you state it in your OSS submission. All VAT amounts are then paid collectively to the Federal Central Tax Office or your country equivalent.
For e-commerce businesses with an annual turnover of over €10,000 in sales to other EU countries, the use of OSS is mandatory. If the turnover is lower, you can still register and collect the applicable VAT from your customers.
From April 1st, 2021, retailers can register for the OSS via the BZSt’s (or your country’s relevant tax office) online portal. The latest registration time is June 30th, 2021, i.e. one day before the new procedure comes into force. If you already registered for the previous Mini One Stop Shop (MOSS) procedure, you don’t need to do anything else. The data is automatically transferred over.
What VAT is due for customers of non-EU countries?
Whether and how much VAT online retailers have to charge depends entirely on the legislation of the respective country and on the product. Therefore, we recommend clarifying this issue with a tax expert.
You can find some useful info in this up-to-date VAT table.
What will change in my Jimdo online store?
We’ll change the VAT entry field to “incl. VAT” before July 1st. This way it covers any VAT rate you have to pay. This applies both in the store and the checkout. This means that when you export your orders to a file, the VAT will no longer be shown separately in the table.
If you use the small business regulation, everything stays the same. The VAT rate won’t be shown as before. This makes it easier for you to sell different products at different VAT rates in your store.
Do I need to do anything?
We’ll update your store for you, this won’t affect your prices. All you have to do is check that you’ve included VAT in your product prices.
If you don’t have to include VAT because you’re a small business, you can activate this option in your store. Then your prices will be displayed without the “incl. VAT” and with a note stating that you’re a small business and don’t have to indicate VAT.
Just make sure to check whether you exceed the threshold of €10,000 to see if the new VAT regulation applies to you. It’s also up to you how you indicate the VAT on your invoices.
It may be worth including higher VAT rates in your prices if you mainly sell to customers from other EU countries.