EU value added tax reform to take effect in three days – what is to be expected on 1 July 2021?Tax Administration Bulletin, 6/28/2021
The joint EU VAT reform will take effect in the entire territory of the Union on 1 July 2021. The reform will affect online shopping among other things, as all purchases that are delivered from outside the EU are subject to VAT and customs clearance. The current limit of 22 euros for tax-exempt online purchases will be removed. Read our summary here on what the reform means in practice.
As small parcels ordered from outside the EU have not, up until now, been subject to value added tax, the reform will introduce a more equal competitive environment for domestic companies and other parties. In the future, persons who purchase goods on the Internet must make sure that VAT is paid for goods that they order from for example China, the United States or the United Kingdom.
The reform will also facilitate online shops engaged in consumer trade in the EU; a company does not need to register as a VAT payer in all of the EU countries where it sells goods or e-services to consumers.
What will change on 1 July 2021?
- All purchases delivered from outside the EU have to be declared and VAT has to be paid for them. This concerns also small consignments with a maximum value of 22 euros that currently are, as a rule, exempt from tax.
- Even now there is special VAT system in use that has covered telecommunications services, broadcast services and e-services to consumers in the EU. As of early July, the special VAT system will also cover all services sold to consumers in the EU, as well as the internal EU online trade in goods. The One Stop Shop (OSS) system comprises also the Import One Stop Shop (IOSS) for goods ordered from outside the EU. VAT may indeed be included in the price of a purchase in the future, given that the online shop is registered as an EU VAT payer in the new special system.
- In practice, this means that a person who orders goods from outside the EU should check with the buyer whether VAT is included in the price of their purchase. This is possible with purchases of a maximum value of 150 euros. Depending on the transport company, from the buyer’s viewpoint, customs clearance may take place automatically through the transport company. Transport companies may charge a fee for the service.
- As for the Åland Islands, all goods delivered from outside the EU, from elsewhere in Finland and from other EU countries must be declared and VAT must be paid for them. The Åland Islands do not belong to the VAT territory of the EU, but do belong to the customs territory of the EU.
- The number of parcels to be declared will multiply overnight. Each year, millions of parcels that previously did not need to be declared must undergo customs clearance. This may cause backlogs as regards parcels and customer service, especially in July.
From an online buyer’s perspective, the reform requires even more care and attention when making purchases. Even if an online shop operates in the EU, it is good to check for example from the seller’s website from what country its goods are actually sent. The reliability of the seller is also important to consider.
– From the buyer’s viewpoint, the reform may bring about new kinds of pitfalls. In principle, it is possible that a seller charges VAT in connection with a purchase, but has not registered in the joint EU IOSS system. It is also possible that the seller is registered in the system, but has not given their IOSS identifier for example to Posti or the customer, which means that the identifier is not forwarded to Customs. In such cases, value added tax must be paid again in connection with importation. Customs cannot refund any surplus payments. Instead, customers must claim a refund from the seller. We encourage people to favour reliable online shops and to check the necessary things with the seller before making purchases, says senior customs officer Nadja Painokallio.
Smoother trade for Finnish businesses in the EU – VAT transactions can be done in the OmaVero service
The reform brings about changes not only to consumers, but also to businesses. The reform makes it possible for businesses to register in the One Stop Shop (OSS) special system in a single EU member state, and to take care of VAT declaration and payment obligations in a centralised way. The special system can be used by businesses that sell services or goods to consumers based in the EU. In Finland, the tax transactions in question can be done in the OmaVero service.
– When a company starts using the special system, it can declare and pay taxes involving consumer sales of goods and services through a single EU member state. In other words, a company that uses the special system does not need to declare and pay VAT separately to each buyer’s country, says senior adviser Annaliisa Pöyhönen from the Finnish Tax Administration.
If a company does not use the One Stop Shop system, it must still register as a VAT payer in all countries to which it sells consumer goods or services.
If an online shop’s consumer sales amount to a maximum of 10 000 euros for two consecutive years, registration in the One Stop Shop system is not necessarily required. When they so wish, businesses with small turnovers can declare and pay VAT on consumer trade in their own countries as of the start of July.
Have a look at our previously published material
Customs and the Tax Administration have released bulletins during the spring on the various effects of the reform, as well as instructions and tips for consumers and businesses. Have a look at our previously published bulletins and newsletters:
- Do you order goods from foreign online shops? Here are some tips for clearing your goods through Customs smoothly – tulli.fi
- VAT reform affects the Åland Islands as well – here is how you can prepare for the reform that takes effect on 1 July 2021 – tulli.fi
- Magazines delivered from outside the EU need to be declared to Customs as of July – the change also concerns magazines imported from the EU territory to the Åland Islands – tulli.fi
- The EU VAT reform may affect the smooth functioning of foreign trade in July – online shoppers should already take into account possible delays when ordering goods – tulli.fi
- All goods from outside the EU must be declared soon – five tips from Customs for smooth e-shopping – tulli.fi
- All web store purchases delivered from outside the EU must be cleared through Customs as of July – tulli.fi
- Smoother trade for Finnish online shops in the EU – VAT on consumers sales can be paid through a single country as of 1 July 2021 (in Finnish) – vero.fi
More information on the reform is available on the websites of Finnish Customs and the Finnish Tax Administration: