Thousands of businesses will be saved time-consuming research, hassle and paperwork next year after VAT regulations are harmonised across the EU.
From 1 July 2021, the EU is modernising tax rules so that companies selling goods and services to consumers elsewhere in the EU can charge and pay VAT where their businesses are based – rather than the current patchwork of rules.
At Blue Umbrella, we believe that this will radically simplify cross-border trading for our customers, particularly small entrepreneurs who sell online but currently spend a lot of their time and money on these administrative matters.
Right now, businesses selling goods to another EU country and exceeding an annual sales threshold must pay VAT in the place where they arrive. This means dealing with tax authorities in another country and potentially another language to obtain a VAT number, file records and pay up – plus potential extra accounting costs at every sales destination.
Some countries have a threshold of a minimum of €10,000 in sales exports, some set it at €30,000 and some at €100,000. This doesn’t make it easy to stay on the right side of VAT rules if you are selling downloadable education videos to people all over Europe!
One Stop Shop
Next year – with implementation stalled six months due to the coronavirus – things will get easier. The threshold will be scrapped for non-EU businesses, so VAT is simply due in the country where the sold goods first arrive.
EU-based businesses exporting more than €10,000 worth of goods or telecommunications, broadcasting or electronic services within the EU will be liable for VAT in the country where they are delivered. But they can also choose to declare and pay VAT in the country where they are based (the so-called one stop shop or MOSS declaration). It will make no difference whether the consumer or the business has been responsible for shipping.
For small businesses that are just based in one EU country, there will be an advantage. If they export less than €10,000 a year in goods or digital services (in telecommunications, broadcasting and electronics) to consumers, they can simply pay VAT where they are based.
Bear in mind, though, depending on the VAT rate where your consumer is based and how much trade you have there, it might still be to your advantage to pay VAT at the point of delivery.
Fair playing field
The new rules aim, according to the EU, to “facilitate cross-border trade, combat VAT fraud and ensure fair competition for EU businesses.” They should mean EU businesses can better compete with international marketplaces and platforms which are not charging VAT, for instance. The costs and complications of trading across the EU should also decrease dramatically.
While the EU thinks that the new rules will raise €7bn more a year in VAT revenues for member states, at Blue Umbrella, we believe we will be better able to help all kinds of clients by taking care of all of their EU VAT obligations in one place.
Finally, we can celebrate a new ruling from the EU to support international trading for small entrepreneurs.
More detail needed?
Contact one of Blue Umbrella’s specialised team for advice on how this ruling could be to your advantage.