VAT on online shopping generates €1.9bn in 6 months

A new VAT system that was introduced to cover online shopping purchases within the European Union (EU) has raised revenue of €1.9 billion in its first six months.

New figures from the European Commission show member states benefited by the amount – equivalent to €3.8 billion across a full year – between the system commencing on 1^st July and 31st December last year.

What is the new system?

Prior to the new regulations that came into effect in 2021, the EU’s VAT regime had not been amended since 1993 – a time that predated the boom in e-commerce. The overhaul of the system last year included:

• Applying VAT to goods imported into the EU valued at less than €22. Under the previous rules, items under this threshold were exempt; meaning goods with a real value over €22 were frequently undervalued.
• Ending the requirement for online sellers to have a VAT registration in each member state. Instead, those with a turnover above €10,000 across all countries can register for the One Stop Shop portal, allowing them to manage VAT obligations for sales across the bloc.
• The introduction of an Import One Stop Shop for non-EU sellers, allowing them to easily register for VAT in the EU. This has ensured the correct amount of VAT is paid to the member state in which it is due.

Why was it introduced?

Beyond making VAT simpler and more transparent across the EU, the new online shopping rules were introduced for a variety of reasons:

• To ensure a more level playing field for all online traders.
• To introduce greater transparency for EU shoppers in terms of the pricing and choice available to them.
• To simplify cross-border e-commerce.

The tighter measures have combined to make VAT easier for sellers and consumers alike, while generating an extra €1.9 billion in revenue for the EU’s 27 member states in just six months.

More than 8,000 businesses have already registered to use the Import One Stop Shop to seamlessly manage their VAT requirements in the EU. Indeed, 94% of all goods now passing through EU customs are covered by the new scheme.

Where else in the world is VAT levied on e-commerce?

It’s not only in the EU where online sellers must accurately and reliably take care of VAT obligations. Several of the world’s largest markets also operate VAT systems that apply to e-commerce, including:

Canada

All distribution platform operators are required to charge and collect GSTGoods and Services Tax on qualifying goods that are sold through their platform by vendors that are not registered for GST.

Vendors that are registered must charge and collect tax on all transactions – including those made via a distribution platform.

India

Marketplaces in India – known as electronic commerce operators – must collect and remit GST. However, there is some confusion around whether these platforms should do so at the standard GST rate for products.

Vendors registered for Indian GST will receive a tax credit for the amount of GST collected by platform operators. If an operator does not have a physical location it is required to appoint a tax representative who will register and pay GST on its behalf.

Indonesia

Indonesian law is not entirely clear, but online marketplaces might be required to charge and remit VAT on sales made to consumers in the country. As well as liability for VAT, online marketplaces must also meet reporting requirements, which include recording all transactions by vendors and submitting the details to the Directorate General of Taxes.

New Zealand

Online marketplaces are typically responsible for GST when a sale is made by a vendor through their platform, providing it is registered for the tax, the goods are delivered to New Zealand or the sale is comprised of low-value goods from a non-resident seller to a consumer.

If none of these rules are met, the marketplace and the vendor should agree that the vendor will take responsibility for GST.

Thailand

Electronic platforms are liable for VAT on behalf of sellers under Thai tax regulations, providing certain conditions are met.

Marketplaces that sell digital services must register for VAT once turnover exceeds 1.8 million baht per calendar year. They will also be responsible for collecting and paying VAT on behalf of vendors if they offer the service in question, receive payment for it and deliver it to the consumer.

UK

Digital marketplaces are liable for collecting and reporting VAT on sales to UK customers.

If the goods are located in the UK and sold by an overseas vendor, the online marketplace will be responsible for the tax regardless of the sale’s value.

For sales involving goods from outside the UK, the marketplace will charge and report VAT if the value is under £135. However, if the item is valued above £135 it becomes the seller’s responsibility.

These rules do not apply in Northern Ireland; since Brexit, it has operated a specific set of tax rules.

USA

The US system is a complex one, with each state having different laws around tax for online sales. In most states online platforms are responsible for collecting and remitting sales tax on behalf of sellers once they exceed a certain threshold.

However, there are four states that do not boast any such laws: Delaware, Montana, New Hampshire and Oregon.

What does it all mean for businesses?

Businesses that sell goods online or act as online marketplaces must understand and apply the various sales tax rules and regulations in countries across the world, depending upon where they are based and where sales take place.

This means maintaining accurate tax rates, codes and other data for each country; and, in some cases, states, cities and even streets, depending on where jurisdictional boundaries are drawn.

Keeping an up-to-date database and operating manual workflows to determine tax across the world is a time-consuming and laborious task. That’s why we advocate investing in automated tax technology to achieve seamless compliance with global sales taxes with only minimal human inputs required.