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The European Commission has announced a series of measures to improve how VAT works for small and medium sized traders in the EU.
Without a doubt, the most welcome reform is the change of tack on VAT MOSS. In 2015, the EU’s VAT rules were altered to make the ‘place of supply’ for transactions of digital services (think eBooks, MP3s, software -- anything intangible) to the location of the customer, not the location of the trader.
It was done to stop behemoths like Google and Amazon from booking their sales in low VAT jurisdictions. This change was introduced alongside the mini one stop shop (that is, the MOSS in VAT MOSS). Using the service, traders could pay their EU VAT liability through their own country’s tax authority.
To use the service, a business selling into the EU needed to provide two pieces of customer location data. But the smallest businesses didn’t have access to the data and thereby struggled desperately to comply with the new law.
The administrative burden of VAT MOSS was wholly disproportionate, often forcing small traders to sell via online platforms, rather than on their own account. The scheme also had no threshold, meaning it was impossible to escape its clutches.
These new EU reforms offer significant respite. From January 1 2019, there will be a €10,000 threshold below which the VATMOSS rules will not apply. That figure is way below the UK VAT threshold, of course, meaning the smallest business will escape VAT altogether. For traders in the €10,001-€100,000 range, there will be “simpler procedures”.
In another positive step, the EU Commission is extending MOSS to tangible goods. This will come into effect in 2021, and will make it much simpler for small retailers to sell into the EU. The new threshold will be in place by then, meaning the small-to-medium retailers will have an easier ride.
Another big change is the EU’s intention to make large online marketplaces responsible for ensuring VAT is collected on sales made by companies in non-EU countries to EU consumers. EU traders have been dogged by non-EU traders undercutting prices through avoiding VAT.
The EU’s reform includes sales of goods that are already being stored by non-EU companies in fulfilment centres within the EU, which can often be used to sell goods VAT free to consumers in the EU.
Doesn't this mean that previously VAT zero rated items will now be VAT rated ?