The VAT clock on online purchases stops ticking on July 1

Expect some doorstep surprises as customers will have to pay VAT and perhaps extra duties/customs charges to the delivery company for receipt of their cross-border purchases

Mon, 28 Jun, 2021 - 06:30

John Whelan

Irish e-commerce traders are bracing themselves for a fresh wave of disruption in the coming week, akin to the Brexit issues of last January.

On July 1, new regulations will come into force making all packages from outside Europe subject to VAT. This means that VAT will have to be paid on all parcels entering the EU block and Northern Ireland, regardless of how small the value.

Gone will be VAT exemption on low-value items.

Most affected will be companies located in the UK, US, and China which supply the bulk of internet sales of goods from their websites into Ireland and other EU states.

Suppliers in these countries will need to appoint an agent located in one of the EU blocks of countries, who will act on their behalf and ensure VAT due on imports is collected and paid over to Revenue.

An Post, FedEx, TNT, DPD and other parcel couriers who handle most of the online purchase deliveries, will take the brunt of the rise in documentation.

Postal and Parcel Technology International state that the additional flow of information to be processed will result in a huge workload increase for postal companies and potentially significant delays in parcel delivery.

The new regulations require each parcel to have a registered supplier code, the international harmonised customs code, and the VAT status of the supplier, in addition to the current validation data.

This data must then be processed through Revenue and EU customs authorities.

There are some potential big wins for Irish Revenue. the European Commission in 2018 reported that uncollected VAT across the EU that year amounted to €140bn, of which €1.6bn was lost to Ireland.

The Commission maintain that the e-commerce import channel was an open door to fraudsters and also gave foreign suppliers a competitive price advantage over local Irish and EU businesses.

Administrative benefits for businesses

There are also significant administrative benefits for your business, according to the Commission, if you register for the simplified system available under the newly introduced Import One Stop Shop (IOSS) which removes the need for multiple EU VAT registrations.

The IOSS will ensure that the business is only required to file one EU-wide quarterly VAT return and make one quarterly VAT payment in respect of all EU sales over the internet.

There appears to be some truth in this assertion in that rather than requiring traders to register for VAT in each member state to which they supply goods, the IOSS can be used by businesses in Ireland and Northern Ireland to account for EU VAT on their sales of goods to customers regardless of where they are within the EU.

There are a wide range of VAT rates on the sale of goods across the different EU countries, ranging from 17% to 27% which is a headache for many businesses.

The IOSS system can also be used by the business to account for VAT on services provided to EU customers where the place of supply rules indicate that VAT is payable in the place where the service is performed; this would include admission to cultural, artistic, entertainment or similar events and exhibitions.

Rather than registering for VAT in each member state in which the company provides these services, the business will have the option to account for the VAT through a single IOSS return.

However, where a foreign supplier does not register in the IOSS system, then postal operators, express carriers, or other customs agents in the EU who typically declare low-value goods for importation, must collect the VAT from the customer and remit this to the revenue authorities.

All the loopholes have been closed by the European Commission on these issues, so if you use online platforms, such as the widely used Amazon, or the increasingly popular China platform d1 Alibaba when buying goods from Asia, the platform will be judged to be the supplier and responsible for collecting the VAT from you on delivery.

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Expect some doorstep surprises as customers will have to pay VAT and perhaps extra duties/customs charges to the delivery company for receipt of their cross-border purchases.

Whichever way you asses the new system, it has been evident for some time that if there was ever going to be an efficient single market in Europe, a neutral and transparent turnover tax system was required and it should be seen as part of a global trend, rather than the European Commission trying to be difficult.