Companies from the UK and sales to the EU – tax settlements for e-commerce businesses

Sales from the United Kingdom to European Union countries in the e-commerce industry. After Brexit, which signifies the United Kingdom’s departure from the European Union, regulations regarding trade exchange and the sale of goods to and from the United Kingdom and EU countries have significantly complicated tax and accounting settlements, including those related to VAT. What options and associated obligations does an e-commerce company selling its products from the UK to EU countries have?

Brexit and tax settlements in the e-commerce industry

Formally, the United Kingdom left the European Union on January 31, 2020, but officially, due to the transition period, Brexit began to apply to entrepreneurs and consumers from the beginning of 2021. Since then, sales transactions between the United Kingdom and the European Union are subject to new legal and tax regulations and formalities. These are defined by the trade and cooperation agreement between the United Kingdom and the European Union. After Brexit, the same rules apply to the United Kingdom as to other “third countries” not belonging to the European Union, such as Switzerland, Norway, or the United States.

Additionally, new British VAT regulations came into effect on January 1, 2021, meaning that the United Kingdom is no longer subject to EU VAT regulations. The changes affect both sellers from the European Union and those from outside the Union who sell products to the United Kingdom, as well as those from the United Kingdom offering goods to customers in EU countries. This means that transactions such as intra-community supplies/acquisitions (B2B) and distance selling (B2C) between the United Kingdom and the European Union are no longer possible because the United Kingdom is no longer bound by the VAT Directive 2006/112/EC of November 28, 2006, and Council Directive 2008/9/EC of February 12, 2008, which define detailed rules for the refund of value-added tax.

Sales between the United Kingdom and the EU in the e-commerce industry – import and export of goods

Since January 2021, there have been exports and imports of goods between the United Kingdom and the European Union. The exception is the territory of Northern Ireland, where EU VAT regulations continue to apply under the Protocol on Ireland / Northern Ireland, solely in relation to trade in goods.

It is also important to note that there is no application of the EU VAT-OSS procedure for firms selling to or from the UK, which from July 1, 2021, enables the collection and remittance of VAT on sales in all EU countries in one member state. Entrepreneurs, including e-commerce companies conducting sales between the UK and EU countries, may be subject to the requirement to register for VAT purposes in additional countries.

For goods imported from the United Kingdom, this means the necessity of settling VAT in a European Union country to which the goods are imported. Goods exported to the United Kingdom, on the other hand, are subject to a 0% VAT rate in the European Union, but are also subject to UK VAT requirements.

Brexit and key changes in VAT for e-commerce industry from the United Kingdom in a nutshell:

• no intra-community B2B supplies with a zero VAT rate;
• cross-border movement of goods is considered import or export, not intra-community supply or acquisition of goods and distance selling;
• disappearance of distance selling thresholds for British e-commerce sellers shipping goods to consumers in the European Union;
• goods are subject to import VAT, and British sellers should consider VAT registration in Europe or another model of settlements;
• when shipping goods between the United Kingdom and the European Union, customs clearances and controls apply;
• appropriate documents and certificates must be obtained, registration in systems such as GVMS, GB Safety & Security, and PUESC is required, and a separate EORI number must be obtained.

Companies from the UK and sales to the EU – distance selling and VAT IOSS system

UK-based companies have several options for sales to EU countries, each involving different legal and tax obligations, including VAT accounting. The first option is the import/export of goods, meaning direct distance selling from the UK. Importing goods from the UK is treated as importing goods from a third country. If the goods are shipped from a supplier based in a third country outside the European Union, then VAT is paid by the consumer and settled as part of the import customs clearance.

For sales from the United Kingdom to the EU, the so-called non-Union VAT OSS path applies, as well as an optional import scheme covering distance sales of goods from third countries to customers in the EU up to a value of EUR 150 – the VAT IOSS system.

In the VAT IOSS system, the UK seller calculates and collects VAT at the point of sale to EU customers and declares and pays it through a comprehensive service point. These goods may be exempt from VAT upon importation. This enables a fast customs clearance procedure to be initiated – settlement can also be made by the declarant, for example, a courier or customs agent.

VAT IOSS was introduced on July 1, 2021, as part of the VAT e-commerce package. Its main goal is to simplify tax procedures related to cross-border transactions conducted by e-commerce sellers from third countries, such as the United Kingdom, to consumers in European Union countries.
E-commerce companies opting to use VAT IOSS must register in one of the EU member states or appoint a tax representative to handle VAT-related matters. After registration, they receive an individual IOSS tax identification number (VAT IOSS), which is used for tax settlements.

As a result, online sellers calculate VAT for the buyer’s country on the invoice. VAT settlements are made using a single monthly VAT IOSS declaration.
As of July 1, 2021, the VAT exemption for imported goods valued below EUR 22 has been removed, so all goods imported into the EU are subject to import VAT. The IOSS procedure means that import VAT is not charged if the shipment value is less than 150 euros.

It is also worth noting that with the entry into force of the regulation of the Minister of Finance, Funds and Regional Policy of February 23, 2021, entrepreneurs, including e-commerce entities, without a registered office or permanent establishment in the EU but based in the United Kingdom, can conduct business in Poland without the need to appoint a tax representative for the purpose of fulfilling VAT obligations.

Sales from the UK to the EU through marketplaces and VAT settlements

The situation differs for e-commerce companies from the UK when sales to EU countries are conducted through special platforms – Online Marketplaces (OMP). British regulations impose VAT settlement obligations on sales platforms on behalf of sellers.

By utilizing OMPs, entrepreneurs often opt for a cooperation model – fulfillment (e.g., Amazon FBA), in which the platform handles warehousing, customer service, and parcel shipment. Warehousing goods within the UK requires VAT registration with the local authorities. Tax declarations must then include, among other things, the amount derived from sales (via OMP) of products warehoused in the UK.

Sales from the UK and renting a warehouse in the European Union – local VAT and VAT OSS

UK companies can also rent warehouses in any EU country and dispatch their goods from there. Simply sending goods from the UK to a warehouse in the EU does not trigger VAT, as this procedure is not considered an export but merely a transfer of goods from one warehouse to another. Only customs clearance is required.

Subsequently, the UK company can settle local VAT in the country where it rents the warehouse or through the VAT OSS procedure, which applies only to intra-community B2C transactions (provision of online services to individual consumers not registered for VAT).

Sales from the UK to the EU using a subsidiary company

UK e-commerce companies can also establish a subsidiary company in a EU member state and conduct sales of their products through the subsidiary, settling taxes including VAT in the country where the subsidiary is registered, in accordance with local and EU regulations.

This is a solution that brings the greatest financial and tax benefits in the long-term strategy. In this case, assistance with accounting matters will be particularly helpful both in establishing and subsequently managing the subsidiary company.

If you are looking for comprehensive solutions tailored to the needs of your e-commerce business, feel free to contact our expert, who will answer all your questions regarding sales from the UK to EU countries: Contact our VAT Specialists – amavat®.

amavat^® Team