Brexit has brought significant changes to how foreign businesses collect value-added tax.
In the wake of Brexit, significant changes have also been made to both the European Union’s and United Kingdom’s procedures for collecting value-added tax (VAT). As of July 1, 2021, businesses dispatching goods or services from a single EU member state may now register in a single state to collect the required foreign VAT on B2C transactions under a new policy rat has been dubbed the “One-Stop Shop,” or OSS. The changes are part of an EU e-commerce VAT reform package that categorizes e-commerce transactions into one of three schemes:
Import One-Stop Shop: For low value goods delivered from outside the EU
Union One-Stop Shop (Union OSS): Intra-EU B2C deliveries of goods and services
Non-Union One-Stop Shop (Non-Union OSS): Applies to EU services provided by non-EU businesses
These changes are relevant for entities that use the OSS scheme to avoid having to register in multiple EU countries and have instead opted for one central registration within the EU to report all EU transactions through a single OSS tax return. Payments remitted are then distributed from one EU member state to the other states where the VAT is due, based on the location of the consumer.
Under the new e-commerce rules applicable in the European Union as of July 2021, any non-EU-based commercial enterprise supplying electronically provided services (I.e., any services delivered via the internet) to EU-based consumers through B2C transactions is without exception required to register and charge VAT at the rate of the location of the final consumer. To mitigate this burden, the Non-Union OSS scheme (described above) can be requested in whichever EU location makes the most commercial and administrative sense. The current average rate of VAT within the VAT is approximately 20%.
The U.K. also announced significant changes, effective July 1, 2021, to its own OSS rules. Due to the exit of the U.K. from the EU, two separate registrations will now be required for US-based businesses to sell throughout Europe. These changes may force U.S. entities active in the U.K. and the EU to reassess the favorability of offering goods or services to customers in these jurisdictions.
To simplify their tax compliance burden, U.S. businesses may wish to consider registering an EU-based entity under the OSS scheme. These entities will also need to consider the impact of the changes recently implemented for platforms or electronic marketplaces if their sales to consumers are made through an online marketplace. Under complex new provisions, the obligation to charge EU VAT to EU-based consumers may shift from the original supplier of the goods to the marketplace operator. Consequently, operators of marketplace and platforms those who sell through these channels may need to reassess their various legal obligations regarding VAT liability. Note that the burden for applying for the correct VAT rate for the transactions lies with the supplier of the services or goods
For More Information or to Discuss Your Options, Contact BPM
BPM and our affiliated member firms located in the EU and the U.K. are at-the-ready to assist you in applying for and filing VAT returns through the Non-Union OSS scheme. For further information on these significant changes in the EU and the U.K., please reach out to your BPM accounting team or contact Frank Van Hulsen, Managing Director and Head of our VAT team, at [email protected].