Filenews 28 April 2021
The new pan-European rules on VAT also touch on e-commerce in Cyprus. From 1 July 2021, new VAT rules will come into force, offering businesses across the EU a simpler and uniform management system.
The new rules will ensure a level playing field for all businesses and simplify cross-border e-commerce. Businesses will not only benefit from a significant reduction in compliance costs to facilitate wider cross-border trade, but EU businesses will also now be able to compete on an equal footing with non-EU businesses that do not charge VAT. In addition, the new rules are in order to help prevent tax fraud and boost public revenues, which is more important than ever, given that, in 2018, Cyprus recorded a VAT gap of €77 million.
The new streamlined process will be made even easier with the EU's One-Stop VAT (OSS) and One-Stop Shop for Imports (IOSS). These updated platforms have the potential to reduce red tape for businesses and taxable persons by up to 95%! Internet companies may register electronically for vat payment in a single Member State for all distance sales of goods and services within the EU, as well as cooperate with the tax authorities of their own Member State and in their own language, even if their sales are cross-border. Electronic businesses will thus save time and money through this more efficient system.
Detailed what will apply from 1 July 2021
The abolition of the EUR 22/10 VAT exemption threshold for goods imported into the EU will also provide a fairer operating environment for European businesses.
In July, new VAT rules will come into force across the EU, aimed at simplifying the lives of businesses selling goods online, while ensuring a fairer operating environment with non-EU electronic companies.
These rules will be especially important for anyone who sells goods online or has an online shopping website.
The aim is to:
- ensure that VAT is paid in the countries where the goods are consumed or where the paid services are provided,
- create a uniform VAT system for cross-border supplies of goods and services,
- to offer businesses a simple system for reporting and paying VAT in the EU through the one-stop shop portal (for imports),
- create a fair operating environment between EU businesses and non-EU sellers.
These rules will also help to manage the VAT gap, which is the difference between the expected VAT revenue and the actual VAT revenue collected in each Member State. While the overall VAT gap in the EU is falling slightly by almost 1 billion euros to 140.04 billion euros in 2018, the new VAT rules on e-commerce will support efforts to further reduce these numbers and contribute to the global digital transition of both people and businesses.
How e-businesses can benefit from the new rules
The EU has developed new electronic tools where businesses can register and take care of VAT obligations for all their sales in the EU. This replaces the previous system, where online companies were required to register for VAT in each EU country before selling to consumers there. The new system will lead EU businesses to save up to 2.3 billion euros each year from compliance costs.
From 1 July, businesses will be able to declare and pay VAT electronically for all intra-European sales in a single quarterly declaration in cooperation only with the tax authorities of their own Member State and in their own language, even when their sales are cross-border. The new business and taxable persons platform, the one-stop shop (OSS) VAT, can be used to pay VAT on goods and services sold electronically across the EU, reducing compliance costs by up to 95%.
In the meantime, the One-Stop Shop for Imports (IOSS) facilitates the collection, declaration and payment of VAT for sellers supplying goods from outside the EU to customers within the EU. In practice, this means that these suppliers and electronic interfaces can collect, declare and pay VAT directly to the tax authorities of their choice, rather than burdening the customer with the payment of import VAT at the time they themselves receive the goods. This makes life easier for businesses, but also protects shoppers from hidden expenses.
Finally, the current VAT exemption for packages imported into the EU with a value not exceeding EUR 22 will be abolished. Although most non-EU companies traded fairly, this exemption meant that some sellers could declare misleading high-value goods, such as smartphones, at lower prices, only to benefit from this exemption, thus undermining EU companies that had no choice but to charge their customers from the EU at the full VAT price for the same products. By abolishing this exemption, European companies will be able to compete in a fairer environment.
In short, these new rules will lead to a faster, more efficient cross-border online sales experience for both businesses and customers.
