EU VAT

The European Union implemented its own VAT scheme in July 2021.

This guide explains the changes to the EU VAT law, the benefits and drawbacks of the law’s methods of VAT collection, and how online retailers who do not have a location or warehouse in the EU are impacted.

Summary of changes 

Effective July 1, 2021

• The €22 EU de minimis no longer exists; all orders are subject to VAT.
• Online retailers may choose between the three optional methods of VAT collection on low-value imports (total of goods is less than or equal to €150) into the EU as outlined below.

Zonos strongly recommends collecting VAT at checkout to avoid transit delays, slowed clearance, and additional fees, which often lead to refused or abandoned packages and a negative customer experience.

Table 1: Summary of the EU VAT changes

EU VAT collection options 

How to register for an IOSS number 

If you use the Import One Stop Shop program, it is necessary to register for an IOSS EU VAT number in one EU country, which you may choose. Registering for the IOSS will allow you to consolidate all of your EU VAT monthly filings for each EU country into a single payment in the country where you are registered. When choosing one of the 27 EU countries/member states for IOSS VAT registration, you may want to consider the main language spoken in that country, so you don’t have communication issues down the road. For example, Ireland is a good country to register in for online retailers whose native language is English. If needed, you can change the country at a later date by de-registering in one country and registering in a new country.

EU IOSS VAT number registration steps

1. Go to your chosen European country’s Revenue website, e.g., Ireland Revenue Online Service (ROS).
2. Enter all the details requested (company details, personal details, company’s VAT history, etc.).
3. Review your information to ensure accuracy.
4. Confirm registration and wait for your VAT number electronically or by mail.

As a non-EU business, it is necessary for an intermediary/fiscal representative (a person or business who is established and taxable in the EU and can register and remit on your behalf) to assist with registration and remittance. Resources for VAT compliance are through your own international tax representative company.

How to calculate and collect EU VAT 

All carts whose total goods are valued at less than or equal to €150 will owe VAT, which is calculated at the VAT rate of the customer’s country (17-25%) on the cart subtotal, shipping, and insurance. (This method of VAT calculation is commonly referred to as CIF (cost of goods, insurance, and freight).

NOTE: Although VAT is charged on the CIF value, the determination of a low-value shipment is based solely on the cost of the goods alone (without any freight, VAT, or other charges added).

• Be aware of the change in de minimis when accounting for the cost of your items, i.e. a product valued at €10 that you once sold into the EU VAT free because it was under the de minimis, is now subject to VAT.
• All B2C sales of goods will be subject to VAT, which is calculated at the VAT rate of the country where the goods are delivered/received. VAT rates differ by country.

Table 2: Example of itemizing VAT charged on a low-value shipment to Germany

Description: Item value of €20 (VAT excluded and freight costs indicated separately)

The cost of the good is used to determine if an item is of low-value. For example, if a coupon was used, you still use the actual value of the item, pre-coupon. Remember that if it does end up being low-value that VAT is charged on the CIF (cost, insurance, freight) value of the order; in other words, the item value, freight, and insurance combined.

Key points to remember 

• All imports entering the EU, regardless of their value, are subject to VAT as of July 1, 2021.
• You do not have to change your VAT collection method. Special Arrangement and IOSS are optional.
• The United Kingdom has left the EU and now has its own VAT scheme.
• If you’re shipping under IOSS, clearly identify your shipment as IOSS to ensure the carrier does not collect VAT from the consumer. To do this, include your IOSS VAT number in the Sender Tax ID field on the commercial invoice.