New EU VAT changes for ecommerce merchants – Here is what you need to know

June 10, 2021

Illustration of a long shadow European Union map with its flag, and a comic balloon with  the value added tax acronym VAT

International shipping can be a headache for e-commerce retailers – and that’s before rules start changing. In addition to new regulations in the UK that went into effect Jan. 1, new VAT e-commerce rules in the European Union add another compliance layer for companies carrying out cross-border sales.

Here’s what you need to know:

The changes in the e-Commerce VAT Package, which go into effect July 1, replace the existing distance-selling rules. The new policy is poised to impact most businesses, especially direct -to-consumer companies, whether they ship within or from non-EU to EU countries.

There are two important changes to pay attention to, but basically, there’s no getting around VAT. It’s due in the country of destination and it’s due on low-value purchases.

Previously, customers paid a goods and services tax, known as VAT, at delivery for orders shipped DDU (Delivery Duties Unpaid), usually a surprise for customers, but often, less of a headache for sellers. Under the new rules, merchants have no way of getting out of it. If you are a merchant from outside the EU but selling to customers who live there, you will need to charge and collect the tax from your customers on all shipments – DDU and DDP (Delivery Duties Paid) – before declaring and paying the tax globally.

Duties are treated a little differently. The threshold (de minimis) for duties is €150, so your customers will have already paid VAT at checkout and won’t pay duties for orders below that amount. The same applies for shipments to the UK, except that the order value threshold is £135. For orders above those limits, duties must be paid, but when it’s collected depends on the shipment type: DDU or DDP. 

Confused yet? We have some suggestions to help keep it simple.

How to Stay in Compliance & Keep Your Customers Happy:

Surprise fees – like paying duties on delivery – can upset even the most loyal of customers, especially if they are already paying international shipping costs. And, for retailers, that comes with the risk of a refused order which is expensive to return and most likely results in a decision to destroy the package. It’s a lose-lose.

One savvy approach online retailers can take to manage these new policies is to switch to DDP shipping for all customers in the EU. We recommend switching to DDP shipping because it reduces surprise costs and minimizes your overhead costs. Customers will see the duties and taxes upfront when they checkout, and they have the ability to pay all of it at checkout. They’ll avoid any unexpected costs at delivery, and most importantly, you’ll avoid losing sleep over international tax regulations.

Now, here’s one more consideration. In most cases, merchants will need to register for a VAT ID and file quarterly on their own. That is, unless they choose to take advantage of the new Import One-Stop Shop model, known as IOSS. 

The goal of this model is to streamline the whole process of declaring and paying VAT to the tax authorities. That means merchants who use a platform like FlavorCloud, which is an approved one-stop shop, won’t have to register or file any additional documents with customs and tax authorities. FlavorCloud takes care of that red tape every quarter on your behalf with no additional paper shuffling on your end. It also means you’re in compliance with the requirements of the Super Reduced Dataset – a fancy name for a customs clearance system that’ll get your shipments cleared faster, delivered in less time, and reduce costs and returns. 

Frictionless Cross-Border Selling:

A main goal of most merchants is to keep sales flowing without spending time and resources on complicated international regulations. 

Simplify how your company complies with the new UK and EU VAT regulations by shipping DDP with a modern logistics partner. A modern solution can integrate directly into your shopping carts and provide a powerful, one-click international checkout.

If you would like to discuss any of the points above and how FlavorCloud can help, contact us here  or email us at contact@flavorcloud.com  

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FlavorCloud Team

Making international shipping easy