If you buy goods from outside the European Union often, you probably know that value added tax and customs duty do not apply to such purchases under a certain value. But have you heard that the regulation is about to change? The new rules eliminating VAT exemption for non-EU purchases will take effect on 1 July 2021.
How e-commerce transformed the landscape of international trade
Currently, the VAT and customs duty applicable to non-EU purchases is determined based on their price. If the purchase is under EUR 22, neither value added tax nor customs duty applies, whereas goods with a value between EUR 22 and 150 are subject to value added tax, but not to customs duty. These conditions, combined with the expansion of e-commerce, lead to third-country sellers gaining an advantage over their EU competitors, and EU member states have been missing out on significant tax revenues.
No VAT exemption when purchasing from outside the EU
Starting from 1 July 2021, goods under the value of EUR 22 lose their VAT exemption, while they continue to be exempt from customs duty, just like most goods with a value of EUR 22-150. (Customs duty will apply to alcoholic beverages, tobacco products, cologne, and perfume, regardless their price.) This means that no third-country purchases will have VAT exemption.
Orders made before July will also be subject to value added tax if they arrive to the European Union after the new rules take effect. While customs duty will apply only to some purchases, all orders will need to undergo customs clearance, and filling in a customs declaration form will also be required in every case. The customs clearance fee will depend on the value of the goods in question, and it has to be paid by the customer (so it will not be included in the price). The customs checks, conducted by the Hungarian Post, will be arranged automatically if the name, address, e-mail, and phone number of the customer are provided during the purchase.
Most importers will need an IOSS registration
According to the new rules, value added tax needs to be paid when the goods enter the European Union. This is immensely simplified if you as a seller sign up for the IOSS (Import One Stop Shop) scheme that lets you includes VAT in the price the customer pays when purchasing the product.
Importers who wish to implement this system must apply for an IOSS VAT identification number, which is possible since 1 April through the IOSS portal of Hungary. Unfortunately, as of May 2021, the website is only available in Hungarian. Postal and courier services are subject to special agreements: they do not need to join the IOSS scheme and can collect the value added tax by themselves. In other words, the customer pays the VAT to the shipping provider, who then pays it to the tax authority.
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Revoking the VAT exemption and having all packages subject to customs clearance starting from 1 July 2021 will mean more work for the customs authorities and an increase in prices. If you are an importer, get to know the IOSS system in time and avoid headaches. Watch this space for our introduction to the IOSS.
If you would like to be prepared, contact your English-speaking accountant at Helpers Finance. You can learn more about our accounting services here. You can ask for a consultation by calling our office on +36 1 215 0712, by e-mailing firstname.lastname@example.org or by filling in our contact form.
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