As of January 1st, 2021, a new VAT collection scheme will be effective for parcel imports into the EU. This scheme may simplify the customs clearance process for parcel imports. On the other hand, it may also create new filing obligations and tax collection complexities for the service providers handling these imports (i.e. postal operators, express couriers and customs agents).
An extensive impact assessment on the current and new VAT regulations for cross-border e-commerce was carried out by the European Commission. However, this assessment focused mainly on the compliance costs and challenges for SME’s (the suppliers). The European Commission drew no conclusions about the possible impact of the new import scheme on the postal and express sector. What will be this impact and the possible outcome for this sector?
The new VAT import collection system 2021
With the publication of new VAT rules – which will enter into force on January 1st, 2021 – it is the intention of the EU to simplify the import regime for parcels.
The current import VAT clearance procedure for low value parcels will be removed completely (this includes the abolition of the VAT de-minimis rule) and a new way of VAT clearance will be introduced. The new scheme will apply to the importation of parcels with an intrinsic value of up to 150 euros. Under these new rules, two import procedures are available. The outcome is a combination of a supplier registration system, a third-party consumer collection system and a marketplace collection system.
Impact of the new VAT collection scheme on postal & express
Currently, the supplier pays the import VAT (or applies the VAT exemption) and an administrative fee is charged to the customer by the service provider that is handling customs clearance. Because of the duty exemption for small value parcels, there are currently limited activities and obligations for these service providers. After 2020 we expect that the new I-OSS scheme could create an administrative burden for intermediaries like customs agents, postal operators and express couriers if they are not well prepared.
The simplified customs procedures will probably ease the customs hurdle, but will not eliminate the VAT burden. All service providers handling customs clearance are familiar with the administrative requirements at the moment of import. Under the new I-OSS scheme, VAT administration is required on a monthly basis and is charged at sales transactions. This is a new periodical VAT compliance burden for all service providers handling customs clearance.
In the VAT I-OSS return the service provider must report Dutch VAT for the supplies to Dutch customers, German VAT for the supplies to German customers, etc. Freight forwarders and customs agents might be familiar with these activities because they usually also act as fiscal representative for certain suppliers which means that they need to keep a separate VAT administration already. However, these are B2B supplies and not B2C, with the main difference that the transactions are all subject to a VAT exemption for intra-Community supplies instead of taxable with EU VAT in case of parcel imports.
Marketplaces tackling the VAT burden at import
Online marketplaces may have the solution to the VAT collection problem. It depends on their willingness to cooperate and invest in the relationschip with postal and express couriers.
As of January, 1st, 2021, if the supply of goods is facilitated by a platform, the platform will be responsible for VAT remittance, as it will be deemed to have purchased and then sold the parcels. The platform will be able to register for the I-OSS and pay VAT on a monthly basis. A combination of the supplier collection model and marketplace collection model.
The facts that the sales VAT will be pre-paid before arriving at the customs border, may lead to a much faster clearance process. It could also make the clearance and delivery process cheaper for the end-consumer because the handling fee charged by postal or express couriers will be lower. Online marketplaces could label the VAT pre-paid parcels and sent additional electronic information about the parcels to the couriers. Online marketplaces should have a lot of valuable (order & consumer) data available to them. On arrival in the country of import, the label is scanned and the shipment can be VAT cleared immediately.
To effectively make this pre-paid VAT system happen in the EU, postal & express couriers need to reach out to marketplaces and make the necessary agreements in order to benefit both.
The rise of cross-border e-commerce business is creating interesting opportunities for all parties involved. It is however unclear how the import parcel market will respond to the new collection model.
In all cases, we recommend all postal operators and express couriers to take this opportunity to review their current systems and to properly prepare for the 2021 scheme as soon as possible.