EU E-Commerce VAT Laws are Affecting Online Businesses

It was the best of times; it was the worst of times. At least, that’s the current state of affairs you sell to e-commerce customers in Europe.

On the one hand, online sales are booming. E-commerce sales grew 19% in Germany in 2021. And across the EU, the appetite for online shopping shows no sign of slowing.

And yet… if you sell goods outside the EU, things have become considerably trickier. Now that low-value goods are subject to import VAT, customers are surprised by new shopping charges.

It’s a real challenge for drop-shipping to Europe. And it’s a potentially frustrating situation for retailers. There’s an unprecedented demand for online goods, but for many sellers, it’s now much trickier to sell those goods competitively.

The New Drop-Shipping VAT Challenge

In July 2021, the EU introduced its e-commerce VAT package. The VAT reforms included two related changes. First, there is no longer an exemption on import VAT for low-value goods. Previously, no VAT was due on imports worth €22 or less. Import VAT is now due on all items.

At the same time, regulators introduced a new mechanism to manage import VAT and customs on items worth no more than €150.

These changes have important implications for drop-shipping to the EU.

Fast-Tracking Your E-Commerce Imports

If you sell goods to customers in the EU, and those goods are located outside the EU at the point of sale, you now juggle the two considerations.

First, import VAT is due on all imported items, regardless of the sales price. That puts you at a potential competitive disadvantage.

Second, for goods at €150 or less, there is now a way to fast-track the import process, simplify VAT compliance and eliminate surprise costs for your customers.

The latter is achieved using the EU’s new Import One Stop Shop (IOSS), which streamlines the compliance elements of drop-shipping to customers in Europe.

Here’s how it works: using the IOSS, you can account for the VAT on your e-commerce sales throughout the EU with a single quarterly VAT return. That’s much simpler than registering for VAT in multiple countries.

Suitable for Retailers, Good for Customers

Your customers benefit, too. Authorities say that goods imported using the IOSS will be fast-tracked through customs. That’s fortunate because if there’s one thing online shoppers detest, it’s delayed.

The IOSS has another important benefit for online shoppers. As all charges are included at the point of sale, there are no surprise fees upon delivery. The upshot is more reliable delivery and a better overall customer experience.

So, while import VAT remains a fact of e-commerce life, there are concrete measures for online sellers to become more competitive, simplify compliance and ensure they remain 100% VAT compliant.