27th January 2021
Prior to 1 January 2021, when a UK business supplied goods to individual consumers within the EU there was previously a requirement for UK VAT to be charged until the value of the goods sold to an individual country exceeded the distance selling threshold, at which point a requirement to register for VAT in that country arose. For example, if the value of sales to individuals in France were to exceed their threshold in a year, there would be a requirement to register for VAT in France and to begin charging French VAT to the customers. The distance selling thresholds vary from country to country, but are generally approximately €35,000.
With effect from 1 July 2021, the EU is removing the distance selling thresholds and in turn introducing new rules to prevent the need for multiple EU VAT registrations, however UK businesses will no longer be able to benefit from the distance selling thresholds from 1 January 2021, meaning a UK business selling goods to EU non-business customers must answer the question of what to do between 1 January 2021 and 1 July 2021, and then implement a plan for 1 July 2021 onwards.
Options from 1 January 2021 to 1 July 2021
From 1 January 2021, a UK business can treat the supply to EU customers as being a zero-rated export for UK VAT purposes. However, the issue here is that the goods would then be subject to import VAT on arrival into the EU, meaning that the customer would need to pay this import VAT in order to take delivery of the goods. This of course may not be in the best interests of the UK business on a commercial front.
Alternatively, a UK business may choose to act as the importer of the goods shipped into each EU country. This would mean that the UK business would need to register for VAT in that country and pay the import VAT (recovering it subject to the usual rules in each EU country in question), but the place of supply of the goods will be the EU country where they are sent, which means UK businesses must also charge VAT at the rate applicable in each of the EU countries where they are selling the goods.
The third option is to choose to hold stock in one EU country and fulfil orders from this EU country. This would require the UK business to register for VAT in that EU country, but in turn this would allow the import VAT to be paid (and recovered) by the UK business. As the UK business would then be registered for VAT in the EU country, the onward supply of the goods to the customers within the EU could then be treated as intra-EU supplies in the same way as currently, i.e. subject to the normal distance selling thresholds.
The fourth option is for the freight agent to take responsibility for the import of the products. If this option was adopted, there would be no need for the UK business to register in other EU countries, but the freight agent would be charging UK businesses the Import VAT incurred which would be an additional irrecoverable cost to the business.
There would be different VAT registration rules in each EU member state, so if VAT registration in an EU country is the route you wish to take we can put you in touch with advisors in other EU countries to assist with this process.
Post 1 July 2021 (for e-commerce businesses only)
From 1 July 2021, the EU are removing the distance selling thresholds and introducing the One Stop Shop (OSS). By removing the distance selling thresholds and implementing the OSS, e-commerce businesses selling to different EU countries will not have to register for VAT in each EU country. Instead, a business will need to charge the relevant VAT rate in the country where the goods are being sold but would declare this VAT via the OSS return.
UK businesses can also use this OSS system but would need to register as a ‘Non-Union’ taxpayer in one EU member state of their choosing. The UK business would need to submit regular domestic returns in that country as well as the quarterly OSS returns, like any other EU e-commerce business, preventing the need for them to register in every EU country they are selling goods into.
What to do now?
If you are a UK business that is currently selling goods to non-business customers in other EU countries, you should consider whether you wish to treat your sales as being zero-rated exports or if you wish to register for VAT in another EU country. Advice should be sought as to the VAT registration requirements in the EU country in question.