Save the date: European Union abolishes VAT exemption per 1 July 2021

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A considerable proportion of e-commerce purchases are relatively small in size and cost. From the 1st of July this year, new rules come into force which will significantly change how those items are taxed when shipped to the European Union.

Until now, items worth less than €22 have been free from VAT under an exemption known as the Low Value Consignment Relief (LVCR).

However, that exemption is being abolished this summer because of concerns that the system has been abused by retailers deliberately under declaring an item's value to avoid having to pay tax.

It means that retailers shipping goods into the European Union from the rest of the world, including the UK, must pay more attention to how they charge and pay VAT on the goods which they sell.

Value and volume

The Low Value Consignment Relief (LVCR) was introduced as a way of removing from customs authorities in European Union member states the responsibility for checking the potential tax liability of high volumes of small packages which might generate little revenue.

Even so, various countries have claimed that the system has been abused by e-commerce operators in non-EU territories deliberately understating the value of small items being sent to consumers in Europe.

Figures published by the European Union itself suggested that as much as €5 billion in VAT was being lost to tax authorities each year in such a fashion.

The changes

The LVCR is being abolished from the first of July for businesses shipping goods to the 27 European Union member states.

Instead, they now need to apply VAT to all products costing up to €150 from the first cent or penny of their value at the rate applicable in the European Union territory to which goods are delivered.

In addition to VAT, duties may be applied to items worth more than €150.

Paying the tax

Retailers affected have a number of options open to them for paying any VAT which is due.

The most obvious is by direct payment to the tax authorities in destination European Union member states.

However, to simplify the process of paying VAT, especially for those retailers with customers in multiple countries, the European Union has launched a system called the Import One-Stop-Shop (IOSS).

It's a centralised platform for payment of the tax on products costing less than €150 to the authorities in the European Union's 27 remaining member states by online retailers not based in the European Union.

E-commerce shippers need only register in one European Union territory and will be issued with a unique IOSS identification number which will be shared electronically

Details (and payment) of the VAT due must then be filed periodically with tax authorities in the nominated European Union state.

Retailers can register in the IOSS portal of any European Union member state from the 1st of April.

Get in touch

Spring's local sales teams in many countries throughout Europe and across the world have already helped advise many hundreds of clients on how to get to grips with the new VAT rules, IOSS or any of the other European Union initiatives put in place for the abolition of the VAT exemption.

We can also help your business adjust to the changes and continue to grow.

It doesn't matter wherever you are. If you need guidance, we can assist.

After all, we are Spring. We listen, we inspire and we deliver.