Article -

European Commission proposes new VAT rules to support e-commerce and online

businesses in the EU

On

1 December 2016, the European Commission has published proposals to improve the

Value Added Tax (VAT) environment for e-commerce businesses in the EU.

Particularly, the proposed changes, aiming to allow start-ups and SMEs, to buy

and sell goods and services more easily online.

Specifically,

the proposal refers to:

Shop') through which businesses could account for VAT due on supplies of goods

and services in other Member States aiming at the reduction of the VAT

compliance expenses of the e-commerce businesses they currently encounter;

small value consignments entering EU from outside the EU aiming to provide a

level playing field to EU businesses;

businesses selling cross-border could continue to treat sales as though they

were domestic, aiming to minimise burdens attached to cross-border e-commerce

arising from different VAT regimes;

businesses selling cross-border will benefit from simpler procedures for

identifying where their customers are based;

rates on electronic and printed publications aiming to correct the less

favourable VAT treatment of e-publications compared to printed publications.

Subject

to agreement by the Member States, the proposed reforms could start as early as

2018.

A. New

rules - expected to be introduced in 2018

 A1. New VAT Rules for sales of services

electronically

Currently, businesses selling cross-border electronic services have to register

in ALL the Member States to which their customers are based, no

threshold exists.

With

the proposed action, businesses selling cross-border electronic services

without exceeding a threshold of €10.000 per annum can opt to apply the rules of their home country. This rule simplifies the VAT treatment for a large number of small businesses which can remain out

of the Mini One Stop Shop (MOSS) regime, this way.

Moreover,

this would result to the use of familiar domestic VAT rules regarding the

invoicing requirements and record keeping rather than the ones applicable in

the Member State of the customer, as it currently applies.

Also,

small businesses will no longer be audited by each Member State where they have

sales, but by the tax administration where the business is located.

Another

simplification for SMEs selling online services, is the fact that if their yearly

turnover remains below €100.000, these companies will only have to collect one

proof of evidence to prove their customer's location. Currently, they are

required to collect two pieces of evidence.

A2. Equal vat

rate for e-books,

e-newspapers and their printed equivalents

Currently,

Member States are allowed to tax printed publications such as books and

newspapers at reduced or in some cases zero rates, whereas their electronic

equivalents, e-publications, are subject to standard rate.

The

Commission proposes to grant all EU Member States the possibility to apply the

same VAT rates to e-publications as they currently apply to their printed

equivalents (possibly reduced rates).

B.

New rules - expected to be introduced in 2021

B1. New VAT Rules for

sales of goods electronically

The

simplification rules described above for the sale of electronic services are

expected to be extended to the online sale of goods by 2021.

B2.

VAT One Stop Shop portal

Currently,

online traders engaged in the distance selling of goods are obliged to register

for VAT in the EU Member State of their non-business customers.

As

of 2021, the one stop shop, (similar to the MOSS, currently available for the

sale of services electronically) is expected to be extended to the online sale

of goods (distance sales).

This

will be a significant simplification for online traders engaged in the distance

selling of goods, since they will be able to handle the VAT obligations across

the several member states via the use of an online portal, the "One Stop

Shop” by submitting only one simple quarterly return. Consequently, such a

reform will significantly reduce the vat compliance cost online traders

currently encounter.

B3. Abolition of thresholds for imports

Currently,

import into the EU of packages with value less than €22 per consignment is

exempt from VAT. This exemption is expected to be abolished as of 2021.

Disclaimer

This

publication has been prepared as a general guide and for information purposes

only. It is not a substitution for professional advice. One must not rely on it

without receiving independent advice based on the particular facts of his/her

own case.  No responsibility can be accepted by the authors or the publishers

for any loss occasioned by acting or refraining from acting on the basis of

this publication.

February 2017

Our

Firm

Kinanis LLC, a law and

consulting firm, is one of the leading and largest business law firms in Cyprus and advises for over 33 years the international investor and private clients on

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