The pros and cons of the new European VAT system for small e-commerces

New rules simplify formalities but force more taxation in the country where the package is sent

3 min
A worker at Amazon's plant in Catellbisbal

Sixteen months and a pandemic later, the new rules of the game are about to be activated. From Thursday, 1st July, e-commerce businesses selling to other EU countries will be taxed according to new criteria. Brussels is thus approaching a twofold objective: to become a real single market and to shield itself against fraud and competition problems generated by large foreign platforms. But what does this change mean, in practice, for small entrepreneurs?

Paying at the level of other countries

The threshold for paying the VAT stipulated by the country of destination is considerably lowered

Until now, local businesses selling online to people in other countries only declared VAT in the territory in question if they exceeded a specific level of turnover abroad. For example, a Catalan clothing shop with a significant volume of sales in Germany would only have to pay VAT in Germany if it exceeded 100,000 euros a year in sales outside Spain. If it did so, in addition, it was obliged to obtain a German VAT number and hire a manager to carry out the relevant procedures. The same dynamic was repeated in all countries, but with different thresholds: France and Italy forced to follow this procedure when sales to customers in other territories exceeded 35,000 euros per year.

The European Union is now trying to resolve this imbroglio by introducing a single threshold of 10,000 euros. Daniel Vaccaro, a tax expert and professor at EAE, sees it as a way to help countries collect the taxes derived from their citizens' consumption. "Until now, you had to exceed a minimum limit of 35,000 euros for these countries to collect something", he reasons. But for companies, this multiplies the chances of having to pay tax at the level set by other countries.

Simplicity in the procedures

It will no longer be necessary to get a foreign CIF or hire a manager in other countries

On the other hand, the second great novelty is that all this management can be done at home, although it is being taxed on the basis of the VAT of another country. It is the system called Mini One Stop Shop (MOSS) or one-stop shop, which makes the Catalan clothing store pay German, French or Italian VAT but pay it in Spain. Afterwards, Vaccaro explains, the Spanish government will be in charge of distributing what corresponds to each country involved. In short, simplifies the tax specialist, with the new rule "is easier to have to pay tax at the destination, but it has been facilitated the way to do it".

More activity records

It will be compulsory to keep detailed records of all sales to foreign customers

E-commerce will be obliged to fill out forms that will avoid paying customs duties and to keep a record of all sales made outside the country. "Even if they have very small operations they have to keep a very detailed book, because the Treasury can come to make an inspection and ask for the book with all the customers to whom they have sold in Europe", explains Sandra Font, head of the technical office of barriers to internationalisation of Acció. According to Font, the shops that have made the leap to the Internet recently will be the most affected by this, by the pandemic, or those who do not take this channel too seriously. "This regulation will make those who sell online sporadically, or in any way, have to consider making an e-commerce strategy and doing numbers", he says.

Less competition from China

The mechanism by which large foreign platforms could avoid paying tariffs disappears

The rule also changes things for foreign platforms. Until now, if a European customer bought a product of less than 22 euros to a Chinese or American e-commerce, they saved taxes and tariffs. According to Font, however, the EU has stopped receiving 50,000 million euros by the rogue traders that make part of these platforms, since many bill higher purchases in packages of less than 22 euros. With the new regulations this limit disappears and another limit of 150 euros is established, but with other considerations that force the platforms "to take a more active role in the settlement of VAT on these products", summarizes Vaccaro.

The danger for the user is that this will make products coming from China more expensive, but it will give entrepreneurs the opportunity to compete more on equal terms against platforms such as Aliexpress, which is above all the target of this new assumption.