EU VAT July 2021 changes, eCommerce, and WooCommerce

Overview #

The European Union (EU) introduced new regulations related to Value Added Tax (VAT) on July 1, 2021. Merchants selling across borders within the EU or importing to the EU need to comply. In this documentation we will provide key changes and scenarios for the new changes, although this is not exhaustive. For general advice for how to configure taxes in WooCommerce, there is the default Setting up Taxes in WooCommerce documentation, in addition to Configuring Specific Tax Setups in WooCommerce documentation. We use the Euro (EUR) currency symbol € throughout.

These changes only affect B2C (Business-to-Customer) sales. B2B (Business-to-Business) rules stay as they were.

WooCommerce merchants are responsible for complying with the EU regulations. WooCommerce Inc nor WooCommerce Ireland Limited are a marketplace or facilitator as defined by the EU.

Key Points #

Here are some key points:

• For EU merchants, the existing thresholds for distance sales of goods within the EU has be abolished and is replaced by a new EU-wide threshold of €10,000.
• The VAT exemption at importation of small consignments of a value up to €22 has be removed. This means all goods imported in the EU are now subject to VAT.
• Merchants can now file a single VAT return versus for each European country with the new One Stop Shop (OSS) or Import One Stop Shop (IOSS).

Scenarios #

In this documentation we will focus on three different scenarios:

1. EU Merchant selling to another EU shopper – Under the €10,000 Threshold
2. EU Merchant selling to another EU shopper – Above the €10,000 Threshold
3. Non-EU Merchant selling into the EU

EU Merchant selling to another EU shopper – Under the €10,000 Threshold #

Key changes: 

• For EU merchants, the existing thresholds for distance sales of goods within the EU has be abolished and replaced by a new EU-wide threshold of €10,000.
• Merchants who qualify for this scenario can continue to charge the VAT rate of the EU country that the shipment originates from for all EU countries they ship to, and continue remitting to their local tax authority.

Implications for these merchants:

• Merchants can apply the same local VAT rate for all orders to EU countries.
• Merchants need to track if they qualify for this exemption.

Next steps that WooCommerce merchants in this scenario could consider:

• Update tax settings in WooCommerce to set the VAT rate for all EU countries to be the same rate as their own country.
• Merchants can continue to make use of the Tax and VAT related reports in WooCommerce Analytics.
• Merchants can give the option to EU businesses to opt to not pay VAT using the EU VAT Number extension.

EU Merchant selling to another EU shopper – Above the €10,000 Threshold #

Key changes: 

• Current country-specific distance selling thresholds has be replaced by a new EU-wide threshold of €10,000.
• Merchants may choose to use OSS to report all of their EU-wide sales. They no longer have the requirement to registered for reporting VAT in each country, based on the previous country distance selling threshold.

Implications for these merchants:

• The VAT rate to be applied is that of the customer’s country.

Next steps that WooCommerce merchants in this scenario could consider:

• Update their tax settings in WooCommerce to set the VAT rate of each EU country to that specific VAT rate
  • Those rates can be found in the VAT rates applied in the Member States of the European Union PDF.
• Merchants can continue to make use of the Tax and VAT related reports in WooCommerce Analytics.
• Merchants can give the option to EU businesses to opt to not pay VAT using the EU VAT Number extension.

Non-EU Merchant selling into the EU #

Key changes: 

• All orders shipped to the EU are be subject to VAT. The exemption of small consignments of a value up €22 will be removed.
• For purchases over €150, the customer will be required to pay the VAT on delivery.
• Merchants should use the new Import One-Stop Shop (IOSS) filing.

Implications for these merchants:

They will need to decide if they want to collect VAT or not during checkout, the VAT will be collected based on the following:

• For order below €150, merchants can collect the VAT at checkout and then file a monthly VAT return using Import One-Stop Shop (IOSS) filing.
• If no VAT is collected on exports at checkout, the customer will be charged VAT by the carrier on delivery.
• For orders above €150, the customer will pay VAT.

Next steps that WooCommerce merchants in this scenario could consider:

• Update their tax settings in WooCommerce to set the VAT rate of each EU country to that specific VAT rate.
  • Those rates can be found in the VAT rates applied in the Member States of the European Union PDF.
• They may also need to set a €150 limit for charging the VAT for orders outside of their country.
• Merchants can continue to make use of the Tax and VAT related reports in WooCommerce Analytics.
• Merchants can give the option to EU businesses to opt to not pay VAT using the EU VAT Number extension.
• Merchants should update their Terms and Conditions to help make it clear to shoppers what they should expect.
  • In particular, for when the VAT isn’t collected at time of purchase and will be collected on delivery.
• Optionally, a merchant can use a service like Avalara AvaTax Cross-Border to automatically classify items, calculate the VAT at checkout and file with the authorities.

Additional plugins and integrations #

For the United States, cross-state taxes are similarly complex. Our WooCommerce Shipping & Tax handles standard use cases. Merchants are encouraged to use solutions such as TaxJar and Avalara when their requirements are no longer met by WooCommerce Tax.

For the EU, there are integrations that can help, and more will be added when available.

Tax integrations available for WooCommerce #

• Avalara AvaTax Cross-Border is available for merchants selling into the European Union. It will automatically classify items, calculate the VAT at checkout and file with the authorities.
  • In the weeks to come, an update will be released to the AvaTax extension to further automate item classification.
• Taxamo has a new offering specifically with this new regulation in mind (Assure), and Taxamo is working on integrating this solution with the WooCommerce Taxamo extension, initially geared to UK merchants selling to Europe. Watch WooCommerce Taxamo for updates.
• TaxJar’s solution is more suited for US-based merchants rather than those within the EU.

Using WooCommerce Shipping & Tax: #

• EU Merchant selling to another EU shopper – Under the €10,000 Threshold:
  • Merchants can continue to use the Tax offering from WooCommerce Shipping & Tax. It will calculate the standard VAT rate based on the merchant’s EU country.
  • However, are some limitations:
    • It won’t return a different VAT rate for non-standard categories.
    • It won’t track if the merchant sales surpassed the €10,000 thresholds.
• EU Merchant selling to another EU shopper – Above the €10,000 Threshold
  • Merchants should no longer use WooCommerce Shipping & Tax:
  • The incorrect VAT rate would be returned.
    • It doesn’t consider that the merchant is above the threshold of €10,000 and will continue to return the local VAT rate.
• Non-EU Merchant selling into the EU:
  • For merchants opting to collect the VAT during the checkout, WooCommerce Shipping & Tax cannot be used to calculate the VAT rate for shipments to the EU. It will return a 0% rate.
  • For merchants opting to not collect the VAT, they can continue to use WooCommerce Shipping & Tax. The customer will pay the duties on delivery (plus processing fees).

Further Reading #

• VAT rates applied in the Member States of the European Union – A PDF file provided by the European Commission.
• Modernising VAT for cross-border e-commerce – an explanatory document published by the European Commission.
• Configuring Specific Tax Setups in WooCommerce – an additional document to the general Setting up Taxes in WooCommerce, that provides instructions to set up some of the scenarios listed above.

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