E-commerce is exploding at an exponential rate. People are more likely to buy items digitally than they were before, which means that more companies will sell their products online. The corona crisis was the driving force behind production.
However, certain regulations, laws, regulatory provisions, taxation, and other requirements apply to online purchasing that must be followed in order for a company to function legally. Most entrepreneurs, on the other hand, are opposed to more complex legislation because they lack legal expertise with all regulations and responsibilities.
It is important to discuss the most recent VAT rules on e-commerce in this context. Normally, it may have taken effect on January 1, 2021, but the COVID-19 pandemic lasted even longer. The European Commission has already decided to push back the start date until July 1, 2021. It’s also unclear if this is the final date.
Why are these new rules being implemented? This is especially true because new VAT regulation makes it more difficult for EU companies to trade.
WHAT IS VAT?
First and foremost. Let us begin by illustrating what VAT is. VAT (Value-Added Tax) stands for value-added tax, which is basically a sales tax based on the value of products and services. It is incorporated into the price of goods by retailers, who then collect it from consumers and pay tax authorities, as well as incur administrative costs involved with these procedures.VAT is a significant source of income for the government.
The VAT prices that will be imposed for exporting products B2C (business-to-consumer – sale of goods and services to the end consumer), including dropshipping, are determined by the location where goods are shipped.
According to current VAT regulations, if you are selling online in a specific EU region, such as Denmark, you simply need a Danish VAT number, apply your declarations in Denmark, and you will know what prices your declaration is subject to.
What if you have customers in other European countries as well? You will be subject to the VAT regulations on cross-border product markets for private entities.
If your annual income exceeds the thresholds, you must apply for VAT separately in each of the EU Member States where your company operates (the so-called distance selling thresholds). You will have to comply with the VAT obligations of other countries on a regular basis. You’ll be operating in a foreign language and practicing different customs than you’re used to, from filing VAT returns to keeping VAT accounts.
All of this regulatory and legal wrangling over VAT makes life even more complex for entrepreneurs and seems to be an impediment to the domestic market.
Since the EU Strategy aims to create a large domestic market in which VAT is not an impediment to selling products in other European countries
Furthermore, the current rules provide an uneven playing field for European and non-European traders trading goods on the European market. Deception and even extortion are used by the latter to market their products without paying VAT, resulting in higher profit margins than European entrepreneurs who pay VAT while adhering to stricter and more reliable regulations.
That’s why the European Commission agreed it was pastime for new e-commerce VAT laws.
The new e-commerce VAT laws had three goals:
- Revise the VAT regulations.
- Make VAT responsibilities easier to understand.
- Combat VAT theft so that European and non-European enterprises can operate on an equal footing.
WHAT EFFECT WILL THE EU VAT POLICIES ON ECOMMERCE HAVE ON BUSINESSES?
Here’s a quick rundown of the four most important updates:
- In the European Union, a uniform turnover rate of 10,000 euros will be imposed (to be reviewed annually). Do you believe you’ve succeeded? The VAT must be deposited in the customer’s home country after that. At the moment, each country has two thresholds of 35,000 and 100,000 euros. Distance merchants will be able to charge overseas VAT to their clients even more quickly than they do currently under existing regulations, resulting in higher global VAT commitments.
- The second amendment suggests applying the “one-stop store” principle to imported products, eliminating the requirement for international VAT numbers. It is no longer necessary to obtain a VAT number and file local VAT returns in each EU country where you sell. One statement will be sufficient for all of your European transactions.
- Electronic interfaces (web stores, archive websites, and so on) can be known to have purchased and sold products under some circumstances. They will be held responsible for the right VAT payment in this manner. They must maintain a ten-year record of third-party sales made via their website if they are exempt from these laws.
- VAT exemptions for low-value imports would be phased out. A 22-euro threshold is currently in place. Any non-European traders have been accused of undervaluing their exports to prevent paying VAT. With the threshold gone, any distribution of products transported into the EU will theoretically be subject to VAT.
Dropshippers with products from the EU (including the UK), such as China or the UK, may do the following:
- The retailer will use the import One-Stop Shop, i-OSS, for shipments up to the value of 150 Euros. Rather than importing EU VAT, the supplier can pay it in one EU region, simplifying the operation.
- Customs agents, logistical firms, and postal companies who are unable to use the i-OSS scheme would have to measure the shipping volume and receive VAT from the customer.
- Expect a rise in EU warehouses and a major decrease in direct shipments.
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Post time: May-11-2021