The EU Import schemes for third country suppliers engaging into distance sale of goods to the EU customers on or after 1 January 2021

In the last article we discussed VAT implications on the goods transactions (which would be import-export going forward) between the EU and the UK post Brexit transition period (1).

Today we are going to discuss the import schemes which are likely to be applicable for the third country sellers intending to distance sale the goods to the EU customers post 1 January 2021. The EU Notice dated 16 April 2020 prescribes two options of treating these sales transactions –

Option 1

  • Applicable for all products imported from third countries or territories up to the value of EUR 150 except the goods subject to excise duties.
  • The supplier is required to charge and collect VAT at the point of sale to EU customers.
  • The supplier will have to declare and pay VAT to the Member State of Identification via a One-Stop-Shop (OSS).
  • As the supplier would be registered entity in third country / territory and will not be registered in any member state, he is free to choose his member state of identification where he will be required to register under OSS scheme. Through this OSS registration, he will have to declare and pay VAT on distance selling. For this purpose, the supplier would be required to appoint an intermediary established in EU e.g. courier, postal operator or customs agent
  • This OSS registration will be in addition to the supplier’s existing VAT registration in its respective country / territory.
  • As OSS schemes shifts the place of supply at the point of consumption; VAT declared by the supplier in Member State of Identification will be transferred to Member State of consumption basis the supplier’s declarations.
  • Under this scheme, the goods imported by EU customer would be exempt from VAT upon importation resulting into fast track clearance process.

Option 2

  • Import VAT due in respect of goods for which the dispatch or transport ends in the Member State of importation will be paid by the customs declarant (e.g. a courier, postal operator or customs agents) to the customs authorities via monthly payments
  • The same will be collected from customers by customs declarant.

With the introduction of the above two schemes, the current VAT exemption for goods imported in small consignments of a value of up to EUR 22 will be abolished.

Comments

  • The options provide administrative and VAT compliance ease to the third country sellers intending to target the EU markets.
  • E-commerce companies will be relieved from the registration requirements in each Member States due to the import simplification schemes.
  • The Companies distance selling the goods in EU will however need to appoint an intermediary for the purpose of declaration and discharging VAT liability in the Member State of Identification.
  • Such sales to the EU customers would need to be captured correctly in the accounting systems and tax reports as they will have different tax treatment in the main country from where the goods are being exported and different tax treatment for the purpose of declaration in EU.
  • As Brexit transition period is approaching its end in around eight months, UK businesses will have to gear up for these requirements and start planning the business tie-ups, IT system configurations and documentation requirements to ensure correct VAT reporting and payment of VAT.

 

Source Credit – Sampada Borkar (Chartered Accountant )

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