EU To Lose the VAT Exemption on Small Parcels

At the beginning of December, the Council of the European Union (EU) passed legal standards changing the procedure for the collection and payment of the value added tax in e-commerce. Among other things, the value added tax exemption on goods imported to the European Union from third countries and the price of which is less than 22 euros will be abolished.

Pursuant to the current EU legislation, goods imported to the European Union, the total value of which does not exceed 22 euros are exempt from value added tax obligation. This has allowed consumers to order goods from web shops in countries that do not belong to the European Union at a price that is cheaper than that offered by the traders operating in the EU. From 2021 the value added tax exemption will be abolished for the goods with the cost below 22 euros (small parcels) and from then on all parcels delivered from countries outside the EU with the value of up to 150 euros will be taxed with the value added tax. For parcels that cost over 150 euros, the current procedure will remain in force, i.e. relevant import taxes will be applicable for them (customs tax, value added tax, excise duty).

While previously, the companies involved in distance sales had to register the value added tax in each country where they operated, a more simpler, so called one-window system will be established for registering the value added tax in distance sales inside the European Union. It will simplify calculation and payment of the value added tax for traders. Furthermore, in case of goods from third countries the obligation to collect value added tax on distance sales will be on the keepers of the web platforms who enable distance sales from their platform. Thereafter, the keepers of the web platforms are required to pay the necessary tax to the correct country. To facilitate fulfilment of this obligation, a separate portal will be created for the distance sale of the goods that cost up to 150 euros and originate from third countries.

In summary, the new amendments serve the purpose of simplifying the administration of the value added tax during e-commerce and at the same time decrease the administrative burden on e-commerce companies by the processes related to the collection and payment of the value added tax. With the taxation of goods that cost under 22 euros with the value added tax, the European Union will significantly improve the competition inside the European Union, because the tax exemption will lose the price edge of goods imported from third countries as compared to the goods inside the Community, for which the value added tax has always been applicable.

Read more on the amendments here.