While many global industries have struggled through the Covid-19 Pandemic, the e-commerce business has flourished. With this booming market, many companies have set their sights on expanding into international e-commerce marketplaces, particularly in Europe.
However, since the implementation of Brexit at the start of 2021, customs regulations across Europe have changed significantly, leaving many US-based businesses questioning the viability of expanding. While Brexit has had the most significant impact on trade relations between the UK and EU, it has also sparked a chain reaction, resulting in several EU member states re-evaluating and ultimately changing their import legislations, particularly those related to import VAT thresholds.
These changes to legislation in the EU are ongoing, with the most recent changes implemented on July 1st, 2021.
Many have predicted that these modifications to European VAT thresholds and other customs requirements will significantly impact e-commerce right through the value chain, but the extent of this impact is yet to be determined.
To ensure you are expansion-ready, here are four changes in legislation that have impacted EU distance selling regulations to look out for:
Lower VAT Registration Thresholds
The first of the changes is the lowering and standardization of thresholds for distance selling. Before July 1st, 2021, businesses selling goods within the EU who sat above a threshold of 35 thousand to 100 thousand euros (depending on the country) had to register and pay VAT in the buyer’s member state.
This rule has since been abolished and replaced with an EU-wide 10-thousand-dollar threshold. This means that all companies selling in the EU who sit above the new lowered threshold must register for an EU number VAT.
Another amendment to the rule is that businesses need only register in one member state, which will be valid across the entire EU. However, it is highly recommended that you opt for a German registration for those importing into Germany. For help registering your business, contact the Zee team to assist via our parent company, Vat IT.
Changing Rules for Amazon EU
It is not only sellers who are being affected by the new rules. Giant online marketplaces like Amazon will be considered a “deemed supplier” for the intra-EU B2C transactions they facilitate. This means that Amazon will need to calculate, collect, and remit VAT on all imported product sales under €150 and all sales from sellers based outside of the EU.
Essentially, once a customer has ordered your goods, two transactions will now take place instead of one:
1. Amazon will purchase the goods from the seller:
For goods located in the EU at the time of the purchase, this is considered a B2B transaction, which is, therefore, zero-rated. For imported goods, the transaction is considered to happen outside of the EU.
2. Amazon sells the product to the customer:
Here, the correct VAT percentage will need to be charged based on the customer’s country. The calculation and implementation of this is now the responsibility of Amazon.
Although this may simplify your tax as an international seller, it does increase the administrative load on Amazon. This is likely to be reflected in Amazon’s fees and levies. This is an almost direct result of Brexit, designed to encourage goods local to the EU and disincentivize imported goods.
The Removal of VAT Exemptions
The following change will have the most considerable effect on those doing drop shipping and low-value items. The EU has decided to end the VAT exemption previously held on shipments below the value of €22. Instead, all goods imported into the EU will now be subject to VAT. While this could well impact the overall validity of some seller’s presence in the EU market, measures have been taken to simplify importing shipments valued below €150. However, it is unlikely that these will make up for the cost implications faced by this group of sellers.
Thresholds Lowered, Again.
Much like VAT, minimum thresholds have also been dropped for import duties. Before the implementation of legislative changes, goods were considered tax-free if:
- goods had an actual value up to €26.30 (full tax rate at 19%)
- or up to €71.35 (reduced tax rate 7%)
On July 1st, 2021, these dropped significantly to:
- up to an actual value of €5.25 (full tax rate at 19%)
- or €14.25 (reduced tax rate 7%)
This massive €21.05 and €57.10 drop, respectively, has pushed many sellers above the threshold. This will significantly affect the seller’s margins if they choose to absorb these duties or impact the price of their goods if they choose to add these responsibilities to the product’s price.
Either way, sellers will need to be transparent regarding their costs during the purchasing process. Those unable to do this run the risk of alienating their customers due to non-transparent costing, a fear which many people selling into the UK came to realize shortly after Brexit.
According to the official European Union site, the intention behind many of these modifications is to help overcome the challenges faced in cross-border online sales. The EU also hopes to address barriers that arise from VAT regimes for distance sales and importation of low-value consignments.
However, as we have seen historically, changes in legislation very rarely simplify a process immediately. While the revisions may aid sellers in the long run, there is a high probability that these alterations will lead to increased complexity for your EU FBA shipments.
Zee may not be able to change any of these new customs requirements, but we can help you avoid money-wasting delays and provide you with accurate cost calculations to keep your margins stable.