VAT alert: new EU rules from 1st July 2021 – are you ready?
Watch out for Brexit impacts on your EU exports
European customers buying British good have already had difficult experiences over the past few months. Since the United Kingdom officially exited the European single market and customs union on 31st December 2020, multiple customers across Europe have had the unpleasant surprise of receiving the goods they purchased from the UK with a hefty and unexpected tax bill. And similarly for UK customers buying goods from Europe.
Depending on the size of the bill, most customers may have accepted to pay it as a one-off charge, in order to secure the goods they bought. But they are very unlikely to repeat the experience and continue purchasing your goods if your business does not make the right arrangements to prevent this kind of unpleasant surprises from happening again. And given how competitive most sectors are, your clients are likely to find substitutes in a matter of weeks, if not days.
So, between uncertain hefty tax bills, transport delays, and a very important EU VAT (Value Added Tax) reform, what do you need to do?
Your specific options depend on the type of product you sell, the complexity of your supply chain and the nature of your clients (businesses or private individuals). But there are a number of important facts related to tax which you need to be aware of:
- In a number of EU member states, designating a fiscal representative is a legal obligation for companies based outside the EU who perform taxable operations in the EU, such as imports, exports, purchases and sales.
- Designating a fiscal representative allows you to sell your products “free of all rights and taxes” in the EU as if Brexit had not happened: your European clients won’t have any responsibilities in terms of import declarations.
- Obtaining a VAT number in one country allows you to sell there more easily, but if you sell in multiple EU countries, you may need to obtain a VAT number in each of these countries.
- Beyond the legal obligation, tax representation is a simple and economical alternative to physical implantation by creating a branch or a subsidiary.
- A foreign company that has appointed a tax representative in an EU member state will not be subjected to the corporate tax in this member state. The activity is completely remote-controlled from abroad through the tax representative who will handle all the VAT-related obligations required by the local tax administration, such as obtaining a VAT number, submitting periodic declarations and VAT payments, as well as requests for Value Added Tax refunds.
Considering the complexity arising from the VAT regulations, we strongly recommend you to have your operations deeply analysed by tax experts so that you are ensured that your operations are given the right VAT treatment. RM Boulanger will be glad to help you with this.
On top of this, the EU launched a very important reform of VAT rules that apply to B2C e-commerce, which came into force on 1st July 2021. Few people have heard of this reform, but its consequence will be extremely wide-ranging on retailers and e-commerce, and even more so for British companies selling to EU clients, since they are now outside the Single European Mark
What are the new rules about?
- The country-specific VAT thresholds are removed: sellers now need to invoice and collect VAT in each country where their B2C EU sales amount to more than €10,000.
- One-Stop-Shop portals has been implemented in each EU Member State so that local VAT will be collected through one unique point wherever the goods are sold in the EU,
- VAT obligations are transferred from Non-EU based sellers to marketplaces, who have become liable for VAT payments. As a result, non-EU sellers have to specify when the marketplace manages the Value Added Tax for them, to avoid double collection. Marketplaces have to charge and collect VAT directly to the end clients and report it to the relevant Tax Authorities
- The EU hopes these new rules will eradicate VAT fraud on sales to EU clients (estimated at around €5-7 billion annually).
How will they impact UK companies selling into the EU?
- You are affected by the changes whether you sell from EU warehouses or you export from the UK directly to EU customers.
- You are not concerned if you sell only to professionals (B2B) or you do not make any online sales.
What can you do? Depending on your operations in the EU, you have the following options:
- Option 1: Register to the EU’s “One-Stop-Shop” (OSS) scheme, which allows sellers to file and pay the VAT due in all EU countries through one single platform. But for that, the goods sold need to already be in the EU when ordered.
- Option 2: Register to the EU’s “import One-Stop-Shop” (IOSS) scheme, for shipments to the EU with a value of less than €150 that are physically shipped from non-EU countries when the order is placed. Please note that you will have to appoint an “Intermediary” who will be responsible for filing the IOSS return and paying the VAT on your sales on your behalf. RM Boulanger has already been granted the relevant accreditation.
- Option 3: Inform and/or remind the marketplaces you are using that they will need to charge your clients with the price of the products + the Value Added Tax in the country of destination (Applicable to non-EU based sellers and shipments of goods imported to the EU with a value of less than 150€ only).
- Option 4: If you are reluctant to use the OSS and IOSS portal or if you are exporting parcels to the EU with a value higher than €150, register for VAT in all EU countries where you have clients; using a tax representation company such as RM Boulanger.
For simple imports, exports, purchases and sales operations, where all you want to do is get goods through the border once and for all, designating a fiscal representative is likely to be your easiest and less costly solution. Your fiscal representative deals with all your fiscal obligations, thereby saving your clients from having to do so.
Competitive property costs for your storage needs
But for more complex operations, such as multiple export and re-import of goods (e.g. for long and complex supply chains such as in the automotive industry), drop shipping from a non-EU country or exports to several EU countries with multiple stocks (e.g. for repackaging and dispatching goods), you may be better advised to take up space in a bonded warehouse, or even create your own company in Europe, e.g. in Hauts-de-France, the closest European region to the United Kingdom. Although these options may be a bit more costly or time-consuming, they will save you a substantial amount of time and hassle when it comes to preserving the speed and efficiency of your operations.
The Hauts-de-France region accounts for 23% of French property demand: 234,000 m² of take-up in 2020. The crucial aspect of this region is the development potential with 2.6 million m² to be built, thanks to the favourable reception of local authorities who are releasing land. 2020 saw an increase of 48% of the available offer in six months- as high as ever, with 639,000 m². Nord France Invest has designed a comparison tool on real-estate costs, find the most cost-efficient site for your company here.
The region can rely on extensive warehousing resources, with turnkey properties and land reserves at tightly regulated rates. For instance, a 40,000 m² warehouse in Dunkirk is 1.7 times cheaper than in Rotterdam. Therefore, why would you not choose the North of France?
Ready-to-go implementation option
A good case of the type of solutions that the Hauts-de-France could offer is turnkey logistics sites. By 2020, there were as many as 15 sites in the region.
The E-Valley model:
The entire hub has customs clearance, which means that E-valley allows established logistics providers to avoid VAT and customs fees for all goods stored until they are shipped back.
The purpose of the largest logistics hub of Europe is to help businesses operate as seamlessly as possible. Alongside this considerable financial advantage, E-Valley offers benefits due to its location in the Hauts-de-France region:
- Warehouse of 700,000 m². Fully equipped space in Europe’s biggest e-logistics park, with scalable units starting at 6,000 m².
- Bonded warehousing with deferred customs duties and VAT payments allow rigorous control of the cash flow.
- Access to major European roads: 1h to Lille and 2h to Paris via A1, 1h30 to Brussels and 3h to Köln via A2.
- Close to Europe’s largest ports (1h30 to Calais via A26, 2h to Antwerp via A2).