Beginning July 1, 2021, the European Union (EU) will be making important changes to its value-added tax (VAT) regulations that will have a major impact on US e-commerce sellers. Leading up to July 1, it is imperative US brands importing into the EU understand what’s changing and the steps they need to take now in order to best prepare and remain compliant.
Historically, the EU has not imposed VAT or duties on goods valued at less than 22 Euros. This rule previously only applied to e-commerce brands shipping goods valued between 23 and 150 Euros. However, starting July 1, all eligible goods with a consignment value of up to 150 Euros imported into the EU will now be subject to VAT, with duties added to goods over 150 Euros.
As part of the upcoming changes, it will also be a requirement that VAT and duties be calculated at the shopping cart level to be collected by the merchant. This means US sellers must appropriately register with the EU’s Import One Stop Shop (I-OSS) portal before July 1.
Ultimately, the new regulations are designed to ensure EU member states collect all applicable VAT and customers receive a more transparent, seamless buying experience.
Steps to Take Now to Prepare
· Register with I-OSS portal: First, US brands must register with the EU’s I-OSS portal (which officially opened April 1). Sellers have the decision to select one of the 27 EU member states to register with. Merchants only need to register with a single member state via the I-OSS system to access trading within all 27. It is also important US brands do their research before registering with a member state as each VAT threshold varies. Following July 1, brands will be responsible for submitting VAT returns electronically through the portal on a monthly basis to the member state they registered with. Brands must keep records of these monthly payments for 10 years.
· Integrate with e-commerce technology: Once registered in the I-OSS portal, US sellers will be provided a unique VAT ID number. It is then the brand’s responsibility to ensure their e-commerce platform can properly support collecting and paying VAT and duties within the shopping cart. Without this critical step, the merchant leaves the customer liable to pay VAT and relevant duties and fees upon parcel delivery, hindering the overall customer buying experience. It is vital US brands work with a partner who can ensure their e-commerce technology is sophisticated enough to ensure duty-tax calculations are integrated into the shopping cart to ensure VAT is paid correctly.
· Evaluate your carrier partners: Now more than ever, US e-commerce brands should evaluate their carrier partners to ensure they are helping strike the balance between speed of delivery and total landed cost. As buyers continually demand faster delivery, it is imperative to find a carrier partner who can support fast delivery within four to six days for international shipping by leveraging parcel and e-commerce expertise, insight into the global customs clearance process, and the latest integrated technology.
What Do These Changes Mean for Buyers and Sellers?
For consumers, the upcoming EU VAT changes mean they will now have full visibility into the total landed cost at the shopping cart level (removing the risk of being surprised with unexpected VAT and duties upon delivery). Ultimately, this will create a better customer buying experience from order to delivery.
For US brands, the EU VAT changes will provide an opportunity to increase customer loyalty and retention by creating this more seamless buying journey. Additionally, through the I-OSS portal, brands can now register and file a single VAT return within one EU member state versus doing so for each of the 27 member states it does business within to remove some of the headache.
July 1 also signals a pivot from Delivery Duty Unpaid (DDU) to Delivery Duty Paid (DDP) for sellers. Traditionally with DDU, VAT, duties and fees were paid upon customer delivery. Shifting to a DDP shipping method through the I-OSS portal, the merchant will now pass the cost to the customer upfront in the shopping cart. For brands, this means working with a carrier partner who is capable of transparently executing DDP shipments to the EU will be vital.
With July 1 quickly approaching, US e-commerce brands selling in the EU should act now to prepare for the upcoming EU VAT changes. Through registering with the I-OSS portal, properly integrating with e-commerce technology and identifying an appropriate carrier partner, brands will be best equipped to deliver a more seamless, transparent buying experience for customers.
John Wylie is Senior Director of Cross-Border e-Commerce Sales | B2C Shipping – GEODIS in Americas.