VAT 2021. VAT news 2021. What changes to VAT will enter into force from the first of January 2021? What changes to VAT rates will there be in 2021? Which goods and services will receive changed VAT rates in 2021? Which countries change VAT rates in 2021? What happens to EU VAT in 2021? Which countries will reduce VAT in 2021? How does VAT change in 2021?
Changes to VAT within the EU 1 July 2021
- Destination Principle will be initiated for B2C sales
- Reporting according to the destination country’s VAT rate in OSS/MOSS
Today’s distance selling threshold for products is removed and replaced with a foolishly low limit of 10000 Euro already applicable to electronic services. The new threshold should be at least 100000 Euro, but as everyone knows by now, it is forbidden to think, and above all, completely forbidden to think one step further, in the Fairytale Castle in Brussels. The 10000 Euro limit is the sum of sales within the EU, not by country.
This may also apply to those selling SERVICES to private individuals (B2C).
(This was intended to apply to all B2C transactions from the beginning. But this changes on an ongoing basis. Unfortunately today it’s very unclear which type of B2C transactions are covered etc. The latest update appears to mainly concern those who have local sales of services in another EU country, e.g. rental of transport, sales at trade fairs, are ONLY these to be covered by the new legislation now? No clear cut conclusions can be obtained at the moment)
At the same time, companies are being asked to prepare for the changes well in advance, as changes to accounting systems etc often take longer than companies think.
But how should companies prepare when rules and dates change continuously?
If you are affected by this, it may be a good idea to now transfer accounting and invoicing to a slightly larger accounting firm that is able to handle this, adapt the accounting systems, and stay up to date on all the VAT changes in all countries.
Above all, companies need the help of someone who can stay up to date on all the changes of the changes and understand what the changes of the first changes mean for the latest changes.
You must now account for VAT according to the customer country’s VAT rate and use yet another separate VAT return (OSS) to account for the VAT for each country you sell to.
One can already now imagine how this bureaucratic bubble will burst:
How should the German tax authorities check that a Swedish company applies the correct VAT rate and actually pays the German VAT on sales to a German private individual, who has no ledger and is not subject to any audit of their purchases? Ooops, the Brussels-bureaucrats have just shot themselves in the foot… again…
They try to close one loophole by replacing it with an even larger VAT hole. Unfortunately, the new VAT-hole can’t be measured in Euro anymore, the potential is so astronomical that it has to be measured in light-years…
Should the IRS in e.g. Sweden build up competence on all EU countries’ VAT rates and rulings concerning VAT in each country? The German Tax Agency must have the Swedish Tax Agency carry out the audit of the Swedish company, as they have no legal authority to intervene against Swedish companies that do not comply with German VAT legislation. How are they even supposed to know if i.e. a Swedish company is applying the right or the wrong principles of German VAT?
The OSS portal for reporting VAT is to some degree an acceptable solution when selling within the EU, “one ring to rule them all” reporting system for VAT for all EU countries you sell to. This can make it much smoother for those who travel around in the EU selling at different trade fairs in various EU countries. But the rest of the world follows suit and often with low or no thresholds for when the obligation to VAT register in the customer country arises. Just as an example you can take: If you receive an order from a customer in India, well then you have to register for VAT there and report Indian VAT on the sale. Did you get an order from a Russian, same thing. Just hurry up and register for VAT in Russia and account for Russian VAT declarations with the Cyrillic alphabet…
But the most detrimental situation will probably face the small business owners who sell services. If you sell e.g. translations you can get customers all over the world and now you have to start paying VAT to the Tax Agencies in every country you get customers in (this is not the case today, mainly digital services right now, but will eventually enter into force when the destination principle will be applied in full to all goods and services). How is this supposed to work in practice? How should a small business owner keep track of all the threshold limits for VAT registration worldwide? Should the UN build an OSS portal for reporting global VAT worldwide? Could be a good idea if such a system was in place BEFORE forcing companies to comply with new accounting obligations that become impossible to comply with in practice…
More info on this can be found here
VAT exemption for low-value imports is terminated
Today’s exemption from VAT on shipments <22 Euros is abolished within the EU. All goods will now be subject to import VAT if sent from a seller outside the EU VAT area.
Platforms may be required to add on VAT
This applies to platforms that allow merchandise etc to be sold. Not services yet. This can e.g. be Amazon where a Swedish seller sells to a German customer but has not added German VAT, then Amazon will be obliged to add and pay outgoing VAT to the German tax authorities.
It could also mean that e.g. Upwork in the future (no earlier than 2022) will be forced to apply the buyer’s country’s VAT when someone sells services through the platform. Today, the seller must in e.g. Sweden deduct Swedish VAT from the income when selling to a private individual in another EU country. Upwork’s internal invoices (the freelancer’s internal accounting document) do not automatically add VAT to the seller for buyers without VAT number etc. They may now need to do this. But much is still unclear, who must and who does not have to follow this? What happens to a platform that is based outside the EU, which follows e.g. Israeli rules, that doesn’t follow this (e.g. Fiverr)?
VAT rate changes within the EU
Many countries’ Corona measures and VAT reductions ceased at the turn of the year, such as Germany, Lithuania, Greece, Hungary, Belgium, but some retain reductions even until 2022 such as Austria and Ireland. It is primarily for hotels and restaurants that VAT reductions are extended.
Spain has raised VAT on sugar-rich drinks from 10% to 21% and face masks, vaccines, and other Corona-related stuff lowered to 4%.
The Azores (Portugal) reduced the standard VAT rate from 18% to 16% on 1 July 2021.
Here are the VAT changes made in 2020
Current VAT rates within the EU (table)
Selected VAT changes 2021 in the rest of the world
What is relevant for EU entrepreneurs is primarily the changes in the VAT on digital services, which means that if you sell files that can be downloaded or similar electronic services may have to invoice with the customer country’s VAT if you exceed the countries’ thresholds for these services. It is primarily sales to private customers that are covered, but e.g. Mexico does not distinguish B2C and B2B in its VAT legislation. Many have threshold values but others do not and then you have to register for VAT there from the first sale.
- Oman introduces a VAT system of 5% (1 April 2021).
- Russia (probably) lowers VAT on e-books from 20% to 10%. Introduces VAT on digital currencies such as Bitcoin (this is contrary to the conclusion in the EU that Bitcoin should be treated as a VAT-free currency).
- Norway has previously removed the exemption on import VAT for goods. Keep in mind that you now also need to add Norwegian VAT up to 3000 NOK. Above > 3000 NOK, the shipping company collects the VAT from the Norwegian customer. Corona package: 12% continued to be reduced to 6% until ???.
- UK is now outside the EU and outside the EU VAT area and customs union.. except Northern Ireland with special rules (inside EU for physical goods not services).
- Canada imposes 5% sales tax on digital services.
- Tajikistan introduces 19% VAT on digital services (1 Jan 2021)
- Paraguay Launches 10% VAT on Electronic Services (Jan 1, 2021)
See a complete list of countries that have introduced local VAT that the seller must add when selling digital services to a customer in each country.