Digital Single Market - Modernising VAT for cross border e-Commerce – EU Announcement 1 Dec 2016

At our VAT & Brexit Update recently we reminded attendees of the need to keep an eye on the ongoing VAT related changes coming out of the EU even though so much of the media is full of the Brexit negotiating options.

This paper illustrates that point exactly with quite wide ranging proposals to support SME’s businesses manage their VAT affairs when dealing in online transactions in goods or services.

There is an actual VAT rate liability change suggested in the document which is to move the supply of e-books away from standard rated VAT treatment (20% VAT in the UK) to the same VAT rate treatment that each EU state applies to its sales of “printed matter”. In most EU states that would mean a reduced VAT rate would be chargeable rather than their standard VAT rate but in the UK we currently have supplies of printed matter in our Zero Rated Schedule. This change is only waiting on EU Commission agreement which could mean it will change in 2017 whereas other possible changes suggested elsewhere in the proposals will not arise until 2018 or 2021 in some instances.

Another welcome proposal concerns the abolition of Low Value Imports relief which effectively means that non-EU based suppliers can currently sell into the EU goods with a value under 22 euros and not have to account for VAT or Duty on such sales – an obvious advantage over an EU based supplier. This is one of the proposals that may take until 2021 to implement – when the EU has sufficient strength of IT systems in place to manage the change.

What is more likely to change a little earlier are threshold levels for SME’s operating in the digital services market place including online downloads, music and other apps or online services (e-books etc). Small businesses in the UK trading under a 100,000 euro level should be able to continue to charge UK VAT on their supplies under these plans which would be a welcome change to many.

If the proposals progress smoothly to 2021, regardless of the UK’s EU VAT status we will see a new One Stop Shop (OSS) for non-EU based importers – which might well be something the UK business community will want to ensure it has access to should the UK be outside of the EU VAT Territory at that stage. It should be noted that the organisation responsible for the VAT declarations under this new OSS system will be the transporter of the goods who may or may not be the supplier.

It is suggested that the extension of the existing MOSS regime to include Goods should be in place by 2021 as well as changes to the Distance Selling regime to move the point of VAT accounting to the country destination (i.e. the customer) instead of the supplier’s country.

Full details of the proposals can be read HERE  

We will also include an update of these issues in our next VAT & Brexit session in early 2017 – do register your interest with Merle at merle.bethell@centurionvat.com for details of these Update events.