Brexit VAT Implications when shipping to the EU after 1st July 2021 - Contact us for more information at - Pro Carrier

Brexit
           VAT Implications when shipping
             to the EU after 1st July 2021

Contact us for more information at hello@weareprocarrier.com

Introduction

If you are reading this paper, we are either about to come to the end of the transition period as part of our exit from
the EU or we have passed that momentous moment and are now in a brave new world. For us, living and breathing
e-commerce, this has had a seismic impact on how we trade and how we operate. What we want to achieve in this
document is to make sense of what this all means to us and to show how Pro Carrier has worked hard to accommodate
the changes that have been brought to bear.

So what does Brexit mean for the UK and for those other countries that are shipping e-commerce from outside the EU
in to the one of the remaining 27 member states that make up the EU – Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,
Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden?

At the moment and up to July 1st 2021, we will enjoy the advantages of the low-value and medium-value rules for
imported goods, referred to as the B to C system. This means there is no liability for duty and tax for parcels being
shipped to an individual if the shipment value is below 22 Euros (£15 GBP) and for shipments valued above 22 Euros but
below 150 Euros (£135 GBP) they are liable for VAT. Above 150 Euros is when duty will kick in. There are a few exceptions
to these rules, such as if you are shipping alcohol then there would be a requirement to account for Excise duty.

As an e-commerce seller today you will have to register for VAT in each country where its annual sales exceeded the
limit for that destination (https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/vat/
traders/vat_community/vat_in_ec_annexi.pdf)

All clear so far?

However the EU Tax department considers this B to C system unfair, since it puts traditional brick and mortar retailers at
a disadvantage as they have to pay VAT on all imports and have to charge VAT at the point of sale. Whereas if sending
low-value orders as an online retailer across borders there is no VAT to be considered at the point of sale.

To ensure that VAT is recognized at the right rate and that the National Tax Departments of the member states where the
consignee/recipient/consumer resides are getting their VAT, the rules change on July 1st. The EU recognized that buying
online has become a mainstay for consumers in the EU, so the new rules whilst evening the score around VAT has also
‘simplified’ the VAT registration and payment process for on-line sellers retailing to individuals in the EU.

Contact us for more information at hello@weareprocarrier.com

New VAT system for imports to the EU

We are talking about two things here, Duties and VAT. Duty is a tax that is charged for the import of goods to the EU.
This tax is collected by customs authorities of the member States and is then sent directly to the Treasury of the
European Union contributing to the cost of running the EU. VAT however is a tax that charges for the import and
consumption of goods within the individual member States. With VAT the customs authorities send this to the treasury
department of the individual member states where the goods were imported.

Today there is a bit of grey area – for instance if shipping from outside the EU entering via the UK, material destined for
the rest of the EU would be entered into the UK using UK VAT rules and then shipped on in free circulation. It is unclear
if that VAT would ever find its way back, or how it would find its way back to the member state where the consumer
resided – another one of the drivers for the rule change from July 1st 2021. Hold this thought.

So, what can qualify as B to C under the new regulations and directives? To qualify as B to C certain criteria must
be met:

    The valuation for tax purposes means the individual shipment must not exceed 150 Euros.

    The goods being shipped are not subject to Excise duty (e.g. alcohol, tobacco).

    The materials being shipped are not subject to special inspections and controls.

    It is being consigned to an individual - it cannot be consigned to a business or a public entity.

Under the post July 1st simplified system, there is not a mandatory requirement to provide the TAX ID of the recipient,
therefore there is no way of understanding whether the recipient is an individual or a business. Of course, we will have
shipments being sent to businesses, however if this has been sent to a business, that business would not be able to
deduct the import VAT.

Contact us for more information at hello@weareprocarrier.com

DDP - IOSS (Import one Stop Shop)

Like the Australian model, the IOSS is looking to make for an easy and innovative way for sellers outside the EU to sell
inside the EU; where it complies with the B to C criteria outlined in the last page.

Broadly speaking, the regulation allows for foreign sellers who use electronic interfaces (e.g. marketplaces, web sites)
and who comply with the B to C guidelines to sell within the EU to be considered (treated like they have) to have
received the goods in the EU themselves and to have delivered by themselves the goods to a final customer in the EU.
This will be known as a DS3C entry.

In ‘simple’ terms what the EU law is allowing is to give the foreign seller, as part of registering for IOSS, a simplified legal
entity in the EU and as such that foreign seller will have VAT obligations in the EU. The DDP transaction now does not
take place when the parcel crosses the border - it now takes place at the point of sale and the seller is responsible for
declaring their VAT at country level.

Remember when I said hold that thought – the new law is ensuring that the receiving country is now receiving their
owed VAT.

For more details on how to register how to register for IOSS, here is a useful link: (https://ec.europa.eu/taxation_
customs/business/vat/telecommunications-broadcasting-electronic-services/content/guide-vat-mini-one-stop-shop-
moss_en)

So, the big difference between before and after July 1st is that all B to C imports within the EU have to include the VAT
rate of the member state where the consignee/consumer/recipient lives.

Every member state will have its own VAT rate, France for example is 20%, Germany 19%, Greece 24%, Netherlands 21%,
Denmark 25% etc.

However certain products may have a lower rate of VAT in the member state based on the nature of the product, one
of the advantages IOSS brings is that for those products the lower rate of VAT can be recognized providing the right HS
code is being used.

Under IOSS, VAT is born when the customer pays for the goods on the web site and the seller accepts the payment.
When this payment is made, that act is legally binding in terms of the seller’s VAT commitments.

If VAT is being declared using the IOSS system material can be cleared through any member state, however as I
mentioned before the VAT will be paid at the rate of the county where the delivery is being made.

Another requirement of IOSS is the mandatory provision of the 6 digit HS code - this will help ensure the VAT levied is at
the correct rate.

Contact us for more information at hello@weareprocarrier.com

Who will pay the VAT?

When the purchaser in the EU makes the payment online, that person will at the point of purchase be responsible for
paying the seller the VAT. Therefore the seller must have the capability to determine the VAT/Duty rates and charge
accordingly.

    If the seller is a marketplace (Amazon, ebay, Wish, JD.com etc) and as such collects the VAT at the point of sale and
    does not pay that back to the third-party seller then the marketplace is now responsible for paying the VAT.

    If the marketplace pays the VAT funds back to the third party seller then the third party seller is responsible for
    paying the VAT.

    If a third-party seller is taking payment directly, although is selling on a marketplace, then that third-party seller
    is again responsible for paying the VAT.

Contact us for more information at hello@weareprocarrier.com

IOSS-VAT number

Once a seller has registered for IOSS, a new IOSS VAT number will be issued. This new number is then to be used as
opposed to any previous VAT or EORI numbers and importantly is to be used for deliveries to all 27 member states.

If a seller has registered for IOSS they cannot use the IOSS-VAT number for any other type of entry.

DS3C entries under the IOSS scheme CANNOT be used for B2B2C entries.

Contact us for more information at hello@weareprocarrier.com

Payment of VAT

The legislation around IOSS deems that the VAT chargeable event (when the VAT commitment is born) is the moment
at which the items have been supplied. For the purposes of IOSS, goods will be considered as supplied at the moment
payment is taken.

The entity that has applied for the IOSS system must submit their VAT return per month and must include all shipments
sent under DS3C to all customers to any of the 27 member states of the EU that will have been shipped to in that month.
The VAT resume must be presented earlier than the end of the month following the month that the respective sales
contained in the resume were made in.

The VAT resume will need to contain but not limited to:

    The sales amount of each DSC3 movement made excluding VAT.

    The amount of VAT collected per DSC3 entry.

    The total VAT that is due.

    Split out by member state destination.

The VAT resume will need to be presented in EUROS.

When registering for the IOSS, a member state is designated as the member of state for registration – payment is made
into a bank account nominated by that designated member state.

Contact us for more information at hello@weareprocarrier.com

Standard DDP

The standard way of managing DDP will still be available as IOSS registration is not mandatory. We can support clients
who have not registered but still want to ship as DDP. We would have to facilitate entry into each Member State within
the EU and the VAT/ Duty applied accordingly. The seller has to pay the VAT to the Member State and would have to
register for VAT if and when the limits are achieved for each Member of State being shipped to – clearly IOSS registration
makes this process far simpler for the seller.

Contact us for more information at hello@weareprocarrier.com

DDU

DDU is the collection of duties and taxes from the recipient as opposed to the source of the transaction. From July 1st
2020 the rules around DDU will also change.

The development of the IOSS (DDP) proposition shows a clear predilection for DDP, and DDP will certainly make for a
more efficient end to end delivery process and provide cost efficiencies.

However, DDU will still be available. There will be two DDU environments:

    Special arrangement for declaration and payment of VAT – Pay VAT only for shipments valued 150 Euros and below
    (no duty). In essence, DDU was introduced with Postal services in mind (those Postal entities who are shipping
    under CN conditions).

    Common procedure – not to be recommended as is a very expensive process. The broker at the point of import will
    collect duty from the recipient and then will have to pay each individual shipment to the Treasury of each member
    state. Each entry will require an SAD entry and because of this, it is expensive.

So, let’s look at the special arrangement entry – as with IOSS the entry has to comply with the B to C requirements
outlined previously (as does those sent via the common procedure).

If a seller does not choose a DDP solution, the member State may allow the entity that presents goods to customs to
make use of the Special Arrangement providing the recipient/consignee has been appointed postal authority or the
courier company to import in his or her name. This is normally by way of a declaration that is signed by the consignee
when contacted to make the payment by the postal authority/carrier/broker.

Now here is the challenge – the procedure states that the import and VAT payment can only be done in the member
state where the individual receiving the shipment lives .i.e. if the parcel is destined for a shipment in Germany it has to
be physically cleared and imported in Germany.

If you are importing through a central point for delivery in other EU States, then that shipment has to go through an
in-customs transit (T1) and be cleared by an entity in each of the onward destinations being shipped to. The current
practice of clearing through point of entry and then being considered as free circulation will cease to exist.

This is quite simple if you are a postal entity that is shipping direct to each Member State and making a postal entry into
each destination State.

Entries under DDU or standard DDP terms will always have VAT levied at the standard rate for that Member State (does
not enjoy the IOSS determination of VAT at HS code level).

At Pro Carrier this makes our decision to place DDU in a postal environment within our proposition a sensible one.

Contact us for more information at hello@weareprocarrier.com

Summary

We hope that this all made sense and that you now have an insight into what the VAT changes mean when they come
into place on July 1st 2021.

    All e-commerce goods coming in the EU from July 1st 2021 will be subject to VAT, no threshold.

    IOSS has been established to simplify the DDP process.

    B to C status only applies for shipments up to a value of 150 EUROs.

    Shipments over 150 Euros subject to formal entry.

    VAT calculated at the rate of the receiving country:

             Country            General rate of VAT              Country         General rate of VAT

             Austria                   20%                         Italy                22%

             Belgium                   21%                        Latvia                21%

             Bulgaria                  20%                       Lithuania              21%

             Croatia                   25%                      Luxembourg              17%

             Cyprus                    19%                        Malta                 18%

            Czech Rep                  21%                      Netherlands             21%

             Denmark                   25%                        Poland                23%

             Estonia                   20%                       Portugal               23%

             Finland                   24%                       Romania                19%

             France                    20%                       Slovakia               20%

            Germany                    19%                       Slovenia               22%

             Greece                    24%                        Spain                 21%

             Hungary                   27%                       Sweden                 25%

             Ireland                   23%

    DDP supported with a IOSS registration is the preferred INCOTERMS to be used - from an EU perspective:

    Pro Carrier Packet – DDU into a postal environment

    Pro Carrier Postal Parcel – DDU into a postal environment

    Pro Carrier Parcel Plus – IOSS DDP and Standard DDP

    Pro Carrier PUDO – IOSS DDP and standard DDP

    Pro Carrier Express - DDU

Contact us for more information at hello@weareprocarrier.com

Further Assistance

In this document, we have tried to give a detailed overview of the changes that are forthcoming and explain what the
implications of these changes will be.

However, should you require further information then I am happy to introduce our VAT advisory partner, Vatglobal.com

“Vatglobal is a VAT/GST Compliance and Advisory business, responsible for managing multi- jurisdictional VAT
registrations, compliance and reporting - with expertise and ability to assist on VAT matters in over 50 countries around
the world. Vatglobal runs all its compliance services out of one office in the UK, making it a true ‘one stop shop.’ The
structure ensures that all compliance matters are handled under one central location thus providing a true centralised
solution to clients.

Our London based VAT compliance hub is supported by an extensive global network of offices and resources,
supporting in excess of 16 000 clients in over 100 countries. These clients range from small and medium-sized
enterprises to large multinational corporations, across a wide range of sectors. Our expertise is supplemented by digital
tools, making compliance more efficient and error-free.”

Contact Jonathan.matthews@vatglobal.com for more information and guidance.

Contact us for more information at hello@weareprocarrier.com