The new system will make it easier for consumers and businesses, in particular start-ups and SMEs, to buy and sell goods cross-border online. It will also help Member States to recoup the current estimated €5 billion of VAT lost on online sales every year.
The agreement was reached by the Economic and Finance Ministers of EU Member States during their meeting in Brussels, only a year after the Commission made its ambitious proposals.
Following the agreement, Andrus Ansip, Vice-President for the Digital Single Market,said: "This is a new step to boost e-commerce in Europe, a few days after reaching an agreement to end unjustified geo-blocking for consumers shopping online. Companies selling abroad online will deal with VAT in the same way as they do for sales in their own countries. This will also make public services more efficient and increase cooperation across borders."
Following the agreement, Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Brick by brick and piece by piece, a new VAT system is being built that is fit for purpose and within which internet companies operating across borders can thrive. At the same time, we are making sure that non-EU businesses do not get preferential treatment when selling to EU consumers - both directly and through online marketplaces. Today's agreement also bodes well for the more fundamental VAT reform in the EU that is so urgently needed."
The new rules will progressively come into force by 2021 and will:
- Simplify VAT rules for start-ups, micro-businesses and SMEs selling goods to consumers online in other EU Member States. VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses, giving a boost to 430 000 businesses across the EU. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 annually. These measures will enter into force by 1 January 2019.
- Allow all companies that sell goods to their customers online to deal with their VAT obligations in the EU through one easy-to-use online portal in their own language. Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.
- For the first time, make large online marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses (so-called 'fulfilment centres') within the EU which can often be used to sell goods VAT free to consumers in the EU.
- Address the problem of fraud caused by a previously misused VAT exemption for goods valued at under €22 coming from outside the EU which can distort the market and create unfair competition. Previously, fraudsters had been able to mislabel high value goods in small packages as having a value under the threshold of €22, making the goods exempt from VAT and creating an unacceptable gap of €1 billion in revenues which would otherwise have gone to the budgets of EU Member States.
The new rules will ensure that VAT is paid in the Member State of the final consumer, leading to a fairer distribution of tax revenues amongst EU Member States. They will help to cement a new approach to VAT collection in the EU, already in place for sales of e-services, and fulfil a core commitment of the Digital Single Market (DSM) strategy for Europe. Today's agreement also marks another step towards a definitive solution for a single EU VAT area, as set out in the Commission's recent proposals for EU VAT reform.
The One Stop Shop for sales of online goods is due to come into effect in 2021 to give Member States time to update the IT systems underpinning the system.
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Q&A on VAT for e-commerce