VAT rules for e-commerce in the EU

If you want to open an online shop in the European market, you will have to deal with several VAT rules. These rules are different from when you only sell to customers in the Netherlands. For distance sales within the EU, one joint threshold of €10,000 applies. You can arrange your foreign VAT return via a one-stop shop system. This way, you do not have to pay VAT separately in each EU country. This one-stop shop system is also known as the One-Stop Shop scheme or OSS.

This article elaborates on the most important VAT rules for Dutch e-commerce companies, such as online shops and platforms that deliver to foreign consumers in the EU. This also includes dropshipping. Several rules apply to VAT in the EU. For example, a threshold amount for charging VAT if you sell to consumers in other EU countries and VAT registration abroad.

EU VAT rules

VAT is charged in all countries within the EU. Each EU country determines its own VAT rates on products. Which country is allowed to charge VAT is determined by:

• From which EU country products are exported.
• Into which EU country products are imported.
• Into which country products are imported from outside the EU.
• Who the importer is; the supplier, online shop, or customer when importing products.
• Whether you deliver to other entrepreneurs or to customers without a VAT number, consumers.

In practice

The 'destination country principle' applies to sales and deliveries for which goods are sent from the Netherlands to consumers in other EU countries. This applies both to intra-EU sales and to sales from so-called 'third countries', countries outside the EU. This means that you charge your foreign customer the VAT rate of their EU member state. If the total amount of your foreign sales in EU countries remains below the threshold of €10,000, you can continue to charge Dutch VAT as a Dutch online shop owner.

If your customer has a valid VAT number, you invoice your customer 0% VAT. Your customer declares the VAT locally.

Threshold amount

In the EU, the threshold amount of €10.000 per year applies. This threshold amount applies to all intra-EU distance sales of goods together with the sale of digital services to consumers in the EU. The rules apply to all intra-EU sales to consumers, including sales that were not made through online shops.

Make sure you keep an eye on the annual threshold amount. From the moment you exceed the threshold of €10,000 within a year, you must start calculating the local VAT rate of your customer’s country. In the following year, you continue to invoice the local VAT of your customer’s EU country. After that year closes, you can calculate your turnover from that year on the first day of the new year. If your turnover remained below the threshold of €10,000 in that year, you may again charge Dutch VAT for the coming year. You can also choose to continue invoicing with the local VAT rate of your EU customers.

You can submit your foreign VAT return in 2 ways. You file a local VAT return for each EU country in which you have sold your products. Or you register with the Dutch Tax and Customs Administration for the Union scheme within the one-stop shop system (OSS). You cannot use both ways.

Example of exceedance

Suppose you exceed the €10,000 threshold in 2022. From the moment you exceed this threshold, you calculate the local VAT rate of your customer’s country. In 2023 you continue to invoice with the local VAT rate of that EU country. On 1 January 2024, you review your turnover of 2023. If your turnover in 2023 remained below the threshold of €10,000, you may again calculate Dutch VAT. You can also continue to work with the local VAT rate of your EU customers.

Once you exceed the threshold of €10,000, you charge the VAT rate of the EU country where your customer is based. This applies to the first invoice with which you exceed the threshold amount. For example, if you have already delivered goods worth €8,000 to consumers in other EU countries and now have to invoice a French consumer for €3,000, the invoice of €3,000 is taxed with French VAT.

Exception threshold amount

The threshold amount does not apply to the delivery of excise goods, such as alcoholic beverages. It also does not apply to new or almost new means of transport (in Dutch). With every delivery, regardless of the amount, you calculate the VAT of the country to which these goods go.

If you sell goods that fall under the margin scheme, these will be exempted from the threshold amount. If you apply the margin scheme, you will owe Dutch VAT to the Tax Administration on the profit margin of the goods. You do not charge VAT (in Dutch) to the customer and do not mention this on the invoice either. The VAT is included in your sales price.

No VAT exemption for import

VAT is always due when goods are imported into the EU, regardless of the value of the shipment. This way the EU ensures a 'level playing field' for all sellers within and outside the EU. You also pay customs clearance costs. These are costs charged by customs or the postal company for handling your customs clearance of imported products. In addition to the import VAT you pay, the customs clearance costs include the customs declaration of goods, storage costs, and administrative processing. Shipments with a value up to and including €150 remain exempt from import duties.

When you sell products from outside the EU to customers who do not file a VAT return, you declare the VAT in the EU country where the goods arrive. For example, when you deliver products from China via your online shop directly to consumers in Belgium. You must pay Belgian VAT on this delivery. You can do so in a simplified manner by using the import scheme (in Dutch) within the one-stop shop system.

Platform fiction

If you sell products to private individuals in EU countries via digital platforms, the so-called platform fiction (in Dutch) may apply. In platform fiction, platform owners pay the VAT on product deliveries from suppliers who trade through their platform. Platform fiction only applies if the seller supplies to the platform and the platform then delivers to a private individual. In this situation, the platform has a 'supporting role'. A supporting role is more than just bringing supply and demand together digitally. For example, supporting orders, payments and the delivery of products. Or when you, as a platform, have general terms and conditions for the delivery of goods.

One-Stop Shop (OSS)

You can sign up your business for the one-stop shop system, or OSS, from the Tax administration. This system consists of 3 voluntary schemes:

1. The Union scheme for EU-based companies with at least one establishment in an EU country. This applies to intra-EU distance sales and services.
2. The non-Union scheme for companies established outside the EU without an establishment in the EU. This applies to providing services.
3. The Import scheme for distance sales of non-EU goods with a value of up to €150.

This scheme is for companies that sell products from outside the EU to consumers in another EU country and have them delivered directly. In that case, you do not pay import VAT. Your customers pay the VAT when they buy the product in your online store. To use this import scheme you need an import regulation number (IOSS number, in Dutch) from the Dutch Tax and Customs Administration.

The Dutch Tax and Customs Administration supports the one-stop shop system with a temporary solution, referred to as the ‘noodspoor’ (in Dutch), or ‘emergency track’. This means that you can use the above schemes, subject to some restrictions:

• Data is partly processed manually. This increases the chance of errors.
• Declarations and registrations have a longer turnaround time.
• Manual processing may result in incomplete information exchange with other EU countries. The Dutch Tax and Customs Administration indicates that any delays caused by the system in the VAT payment to the other EU country have no consequences. For instance, a delay will not result in a fine from the other EU country.
• A system-to-system declaration cannot be done within the emergency track. This is a declaration via your software package..

Using the one-stop shop system for VAT

• Filing your tax return for the aforementioned schemes can be done via Mijn Belastingdienst Zakelijk (in Dutch).
• You need eHerkenning (level 3) for your registration and declaration. You have to register separately for each scheme. If you have a sole proprietorship, you can use your DigiD.
• You can register for the Union scheme and Import scheme at any time. You can use one of the schemes immediately.
• When you use the Import scheme, you submit a monthly tax return within the system.
• When you make use of the Union scheme, you submit a quarterly tax return.

In addition to your foreign VAT return, you also submit your 'normal' VAT return for your Dutch turnover. Depending on which scheme you use, you file multiple VAT returns that may differ per period.

Request eHerkenning

If you do not yet have eHerkenning for your company, make sure you apply on time. When you purchase an eH3 login tool for your registration in the new OSS portal, you may be compensated for your purchase with the compensation for eHerkenning costs. If you are entitled to the scheme, the compensation amounts to €24.20 per year, including VAT.

Storage of goods

When you store goods for your online shop in a warehouse in another EU country, you need a VAT number from that EU country. The goods delivered by you from the foreign warehouse are taxed with local VAT. They are delivered from that country, which means that you cannot declare your VAT via the Dutch OSS portal. You file a VAT return in that specific EU country.

Example

You are using Amazon's fulfilment service in Germany. This means that Amazon takes care of the entire order process and that your stock of products is in Germany. Therefore, Amazon asks you for a German VAT number. If your German stock is only delivered to German consumers, that is not classified as distance sales. This is a local shipment and you process it in a local German VAT return. The sales to Amazon are a B2B transaction and not a distance sale.

You have two options for distance sales from the Netherlands to consumers in other EU member states: either you file a local tax return and opt for a local registration in the relevant countries, or you choose to use the one-stop shop (OSS).

If you opt for the one-stop shop, you declare all your distance sales to foreign consumers in other EU countries. Your registration in Germany for B2B deliveries and national transactions does not hinder the use of OSS. You use the German VAT number for other tax-related matters.

VAT and KOR

You can only make use of the Small Businesses Scheme (KOR) if you have an annual turnover of less than €20,000. The scheme exempts you from VAT. If you exceed the threshold of €10,000 in turnover with your online shop in EU member states other than the Netherlands, you become liable for VAT in the relevant EU member states. From then on, the VAT rules of the EU member state of your consumer apply and the KOR can no longer be used.

You must declare this turnover locally. You can register for the Union scheme within the one-stop shop or register locally for VAT and file a local tax return. The turnover for which you file a local return in another EU country does not count for the KOR. The KOR remains applicable until you reach a turnover of €20,000.

If your annual foreign turnover in the EU remains below €10,000 and this turnover, together with your Dutch turnover, does not exceed €20,000, you may continue to work under the KOR. In that case, you do not calculate VAT and do not declare VAT.

Customs legislation on e-commerce shipments

An electronic import declaration is required for all shipments with a value of up to €150. In addition, there are 2 new regulations for small shipments:

1. Suppliers who deliver goods directly from countries outside the EU can, under certain conditions, use the import scheme within the OSS portal. With this scheme, the supplier submits a monthly VAT return in 1 EU country. This arrangement only applies to shipments with a value of up to €150. Instead of import VAT, the supplier directly pays the VAT applicable in the country of destination via the one-stop shop system. Your customer pays the local VAT at the time of purchase in your online shop. When you use the Import scheme within the OSS, you will receive an 'import one-stop shop number', an input OSS number (IOSS). Third parties, such as postal and courier companies, may use your IOSS number for the import declaration to customs.
2. If companies do not use the import scheme, such as customs agents, transport, and postal companies, the customs authorities at the EU border estimate the value of the shipment. Companies collect the VAT payable directly from the consumer. They report the import VAT due on a monthly basis and pay this via an electronic declaration. This only applies to shipments with a value of up to €150.

Inform your customers about this before they place an order on your webshop. The price stated on your webshop must be a price without VAT. Your customers pay the VAT and any handling costs when they receive the package at the door. Otherwise they pay VAT twice; at the door and via your webshop.

The value up to €150 applies per shipment and does not include VAT. It is the price the consumer pays for the product. When you deliver multiple products to the same consumer per shipment, you add up the value of these goods.

• If the freight and insurance costs are stated separately on the invoice, they are not included in the price. You do not include these costs in the valuation of the €150.
• If these costs are not stated separately on the invoice and are included in the total price, then these costs do count in the valuation of the €150.

Take action

You may reach the threshold of €10,000 for sales to consumers within the EU sooner than you think. That is when you owe VAT in another EU country. This has consequences for your business operations. Take immediate action when the threshold amount comes into view.

• Map out in which countries your customers live, how much turnover you make in each EU country, and which VAT rate applies. Under the new regulations, you are responsible for determining the correct rate and for reporting the correct amounts within the one-stop shop system.
• EU countries have different VAT rates. This has consequences for your selling price per country. Make adjustments to your ERP system for correct administration and invoicing.
• Check how you display the different product prices in your online shop. When visiting your online shop, your customer wants to see a correct price including VAT. This can be done, for example, on the basis of the location or the address details your foreign customer submits.
• Decide whether you want to use one of the voluntary schemes or opt for a local VAT registration in the individual EU countries.
• When you make use of a scheme, the Dutch invoice requirements apply.
• If you have applied for a local VAT number and pay VAT locally, follow the invoice requirements (in Dutch) of the country where you have to pay VAT. These requirements may differ per EU country.

This article incorporated the advice of Raymond Feen, owner of ALLVAT. This company specialises in international VAT for businesses.

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