Reminder on the VAT regime applicable to e-commerce before 1 July 2021
The regime for distance sales of intra-community goods
Before the entry into force of the e-commerce VAT package on 1 July 2021, the VAT regime applicable to e-commerce was costly and administratively burdensome.
In principle, companies making distance sales to individuals in other Member States of the European Union (EU) were required to charge VAT at the rate of the EU country where the goods were located at the time they were dispatched to their customers.
This rule applied as long as the annual volume of their sales to a Member State did not exceed the threshold set by that Member State.
This threshold could range from €35,000 to €100,000 depending on the country.
When the taxable person exceeded the threshold, they were required to:
- Charge their individual customer the VAT of the destination country
- Register for VAT in the destination country
- Submit a local VAT return to declare and remit the VAT to the foreign authorities
Sales of services by electronic means
Taxable persons established in the European Union providing electronic services to individuals residing in the EU were required to charge VAT at the place of residence of the individual when their annual turnover related to these activities exceeded €10,000.
The same applied to taxable persons established outside the European Union, but without the €10,000 threshold: their electronically provided services were taxable from the first Euro in the Member State of the individual customer.
Since 2015, the taxable person established in the EU could declare the VAT due in the EU Member State of their customers in a centralised manner using the "Mini One Stop Shop (MOSS)" system. For companies established outside the EU, the MOSS system had already been in place since 2003.
Introduction of the e-commerce VAT package
The VAT rules applicable until 2021 represented significant VAT compliance costs and administrative burdens (establishing VAT declarations abroad, statistical declarations of shipping or importation into the country, mastery of foreign regulations, etc.).
It was to combat these constraints and to take into account the digital evolution that, on 5 December 2017, Directive 2017/2455, known as the "e-commerce" directive, was adopted. The "e-commerce" directive, which has been subject to several amendments, finally came into force on 1 July 2021.
VAT regime applicable to distance sales of goods since 1 July 2021
Since 1 July 2021, the new European regulation has brought substantial changes to the VAT regime applicable to distance sales of goods to individuals.
Since that date, three One Stop Shop declarative regimes coexist:
- OSS-EU: allows for the declaration and payment of VAT on distance sales of goods within the EU (EU and non-EU sellers) and on taxable B2C services in the EU (EU providers)
- OSS-non EU: allows for the declaration and payment of VAT on taxable B2C services in the EU (non-EU providers)
- Import – IOSS: allows for the declaration and payment of VAT on distance sales of imported goods valued at less than 150 EUR (EU and non-EU sellers)
Since that date, new VAT rules are also applicable:
Regime for distance sales of intra-community goods
Any taxable person who makes distance sales of goods from an EU country to individuals in another EU Member State, whether established or not in the EU, must, in principle, charge VAT at the rate of the destination country of the goods.
European businesses with an annual turnover from intra-community sales of less than €10,000 have the option to apply the VAT of the country of departure of the transport.
Marketplaces are liable for VAT in certain cases
Operators who facilitate the sale of goods online via marketplaces (virtual marketplaces) have, in certain cases, obligations to pay VAT.
Case 1 – European business selling goods from stock in the EU: For goods delivered from a European stock, nothing changes. The business selling the goods remains liable for the VAT due on the sale. It can opt for the OSS-EU in its country of establishment.
Case 2 – European business selling imported goods from stock outside the EU: For goods delivered from stock outside the EU, valued at no more than 150 EUR, it is the marketplace facilitating the sale that is responsible for collecting, declaring, and paying the VAT due on the sale via its own IOSS declaration.
Case 3 – Non-European business selling goods from stock in the EU: For goods delivered from stock in the EU to individuals in another EU Member State, it is the marketplace facilitating the sale that is responsible for collecting, declaring, and remitting the VAT due on the sale via its own OSS EU declaration. It can opt for the OSS-EU in the country of the stock.
Case 4 – Non-European business selling imported goods from stock outside the EU: For goods delivered from stock outside the EU to an individual in the EU, it is the marketplace facilitating the sale that is responsible for collecting, declaring, and remitting the VAT due on the sale via its own IOSS declaration.
Warning – If a non-EU taxable person sells both via a marketplace and through their own website, they remain liable for VAT on the goods they have sold themselves through their site: joining the OSS-EU system is recommended to avoid having to submit local VAT returns in the countries of their customers.
How to pay e-commerce VAT in the Member States? (EU OSS One-Stop Shop / Non-EU OSS and other reporting obligations)
The reform has expanded the scope of the OSS by introducing 3 portals:
The EU OSS portal
The EU OSS one-stop shop allows for the declaration and payment of VAT due in other EU Member States to be made centrally, that is, in a single EU country.
This portal concerns the following operations:
- Distance sales of taxable goods and services in another EU country by a European business
- Distance sales of taxable goods exclusively in another EU country by a non-European business
A seller registered in the OSS system declares their sales across the EU on a quarterly basis. They make a single quarterly payment of all VAT due in the other EU Member States to their Member State of identification, which will redistribute it to the various concerned Member States.
A seller established in the EU who is also liable for VAT in other Member States where they are not established, for services rendered to individuals in the EU, can also declare these operations via the EU OSS one-stop shop.
The Non-EU OSS portal
This portal concerns the provision of services to individuals, taxable in the EU, by non-European providers.
Focus on non-European sellers: attention – the non-European seller must therefore distinguish between the sales of goods and the provision of services in two different OSS declarations: EU scheme for goods, non-EU scheme for services.
Other reporting obligations
Subscription to the one-stop shop does not exempt the European business from filing its VAT return in its country of residence, from having to register for VAT, or from retaining its VAT number for other operations that do not fall within the scope of the one-stop shop.
It also does not exempt the non-European business from registering for VAT in each European country where it has stock.
Indeed, to date, the one-stop shop does not allow for the declaration of purchases (local purchases, intra-community acquisitions, imports, etc.), nor certain sales (local sales, exports, intra-community deliveries of goods, etc.).
What are the practical difficulties in implementing this regime?
Although this regime simplifies VAT compliance, e-commerce merchants still face numerous challenges.
Multiplicity of declarations
The VAT regime in place for e-commerce merchants leads to a multiplicity of VAT regimes and associated reporting obligations.
For example, a non-EU company that sells goods from a stock in the EU and also provides services to individuals in the EU will need to submit:
- An EU OSS declaration for the goods sold;
- A Non-EU OSS declaration for the services sold;
- A VAT declaration to report operations excluded from the OSS.
It is therefore imperative to correctly analyse each flow to determine the appropriate VAT treatment and the resulting reporting requirements.
Diversity of applicable VAT rates:
In its OSS declaration, the taxable person must declare for each country and for each applicable VAT rate, the amount of its sales and the VAT it must remit on its sales.
It is therefore essential for each taxable person to maintain constant regulatory monitoring to ensure the correct application of the VAT rate according to the products sold for each destination Member State.
Corrections of complex declarations
Attention! In case of error, you cannot submit corrective declarations.
You can only rectify previous operations or recover VAT on any credit notes in a separate section. In the case of issuing a credit note, it must be declared for the reporting period corresponding to the original invoice.
The records
The taxable person must also keep detailed records of the sales declared via their OSS declarations and provide them to the authorities upon request at any time. These records must contain several very specific pieces of information defined by Regulation 282/2011: country of dispatch, country of arrival, VAT rate, net amount, VAT amount, payment date, date of the original invoice in the case of a credit note, etc.
Other reporting obligations
Taxable businesses must remain vigilant and alert regarding related reporting obligations they may be subject to in their clients' countries. Examples: statistical declarations, electronic invoicing, and data transmission (e-reporting), etc.
Need assistance with submitting your EU/non-EU OSS declarations? Discover our service offerings
Other expected developments
A new package of measures "VAT in the Digital Age" was adopted on 11 March 2025. It will have impacts on the reporting obligations of e-commerce merchants, spread over time until 1 July 2035. The analysis of this new framework will be available soon!
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- Diagnosis of your VAT organisation, your flows, and the methods of retaining evidence for exempt operations, impact assessment of the new VAT rules;
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- Coaching/training;
- Management of VAT obligations in Luxembourg and abroad: assistance, preparation, and submission of the VAT identification request and VAT returns.
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