New VAT rules for e-commerce businesses in the EU

Thursday 16 December 2016

On December 1 st 2016, the European Commission (‘Commission’) revealed a series of proposals to improve and modernize the VAT rules for e-commerce businesses in the EU. The proposals aim to make it easier for consumers and companies (especially start-ups and SMEs) to purchase and sell goods/services online. The proposals include the following highlights:

• New VAT rules for companies that sell goods and services online. Currently, online traders must register for VAT in all the Member States in which they sell their goods. The Commission is proposing to introduce the VAT ‘One Stop Shop’, as already available for digital service providers, which will allow e-commerce companies to take care of all their VAT obligations in the EU through a new online portal. According to the Commission, this will not only reduce administrative burdens, but it will also help EU companies save revenues while increasing VAT revenues for Member States.

• Simplifying VAT rules for startups and micro-businesses selling online. First, the Commission proposes a new threshold on cross border sales (occurring online) of €10,000 under which companies selling cross-border will continue to apply the domestic VAT rules of their home country (i.e. sales are treated as domestic sales). Second, if the company’s turnover is less than €100,000, simplified rules will apply to identify where their customers are based (and where VAT is due). These two thresholds could apply as early as 2018 for electronic services and by 2021 for online goods.

• Action against VAT fraud from outside the EU. Currently, small shipments (worth less than €22) imported into the EU are exempt from VAT. This is problematic because non-EU companies can fraudulently mark goods as costing less than €22 – thus, avoiding their VAT obligations. As from 2021, the Commission proposes to remove this exemption to prevent fraud and abuse, which is distorting the market unfairly against EU businesses.

• Equal rules for taxing e-books, e-newspapers and their printed equivalents. Member States may apply lower taxes to printed publications (such as books and newspapers) compared to e- publications, which are taxed at a standard rate. The Commission proposal suggests to introduce (optional) rules that enable Member States to apply the same VAT rate to e-publications as to their printed equivalents. This proposal can enter into force immediately upon approval by the Council.

These proposals will now be discussed by the European Parliament and European Council. If adopted, the proposals will benefit online traders by modernizing the VAT for cross-border e- commerce and reducing the administrative burden of online traders originating from different VAT regimes. 

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