Local B2C sellers catering to European Union market urged to comply with new VAT rules

• VAT exemption removed on all goods to prevent abuse of allowance
• VAT registration made mandatory for e-commerce sellers in each EU member state 

The new Value Added Tax (VAT) rules of the European Union (EU) that came into effect last month will impact Sri Lankan businesses and consumers, alongside the rest of the world as a number of changes have been brought about to address loopholes that were used to undercut EU competitors.

The first change is the removal of the exemption if VAT on goods imported to the EU valued at less than € 22 by non-EU companies. The exemption was lifted so that VAT will be imposed on all goods after the EU experienced that the allowance was being abused by mislabeling consignments of goods.

According to UPS Europe Customs Brokerage Walter Van der Meiren, who addressed a webinar organized by the Export Development Board of Sri Lanka (EDBSL), the misuse of the exemption resulted in frauds amounting to about € 7 billion a year.

The second change that would impact e-commerce sellers is the need to have a VAT registration in each member state of the EU. Sellers with a turnover of € 10,000 and above are required to comply with this new requirement. Meiren shared that the VAT must be paid in the member state where the goods are being delivered. 

To streamline the VAT registration process, the EU has formulated the One-Stop Shop electronic portal where sellers will be able to register online and address the VAT obligations for sales across the EU.  Meiren stated that for consumers the One Stop Shop will mean more transparency as the VAT would be part of the price paid to the seller. 

For Sri Lankan sellers, Meiren provided a nine point checklist on what can be done to prepare their businesses for the change imposed by the EU.

According to the UPS representative, businesses should immediately look at; identifying the areas of businesses that will be impacted by the new VAT rules of the EU, register for the IOSS platform, appoint an intermediary to handle the tax compliance, and review and potentially cancel existing foreign EU VAT registrations.

Sellers were also urged to contact marketplaces to understand who is responsible for VAT accounting for Business-to-Consumer shipments up to € 150, and ensure information stated on the shipment way bill and invoice is ‘adequately detailed’.

Lastly, Meiren stressed the need for sellers to inform consignees about the potential import fee if the duty and taxes are to be paid by the receiver.