New VAT for online shops in 2021

In this article, you will learn everything about taxes in e-commerce.

The European Union has announced that the new VAT system, which requires all online stores to pay taxes in the destination country, will come into effect in July 2021. RedUncle will explain in the simplest way possible what the changes are to better manage your taxes with Shopify.

Current Situation

Currently, all e-commerce businesses are required to pay taxes in the country of origin but not in the destination country. This means that if your online store is based in Spain but you sell to an individual who resides in Belgium, you are obligated to apply the Spanish VAT (regardless of the tax rate in the destination country).

So, why is this change happening? Using the example above, Spain currently has a 21% VAT rate, while Belgium has a 17.36% VAT rate. Therefore, to address this inequality, the European Union intends to establish a Common VAT System.

Proposal for July 2021

The new proposal consists of the following three actions:

  1. Elimination of thresholds for distance sales.
  2. The end of VAT exemption for the importation of small shipments of low value.
  3. VAT responsibility on marketplaces for distance sales of goods imported from third territories or third countries.

Currently, each EU member state sets its own threshold for distance sales. This means that if your Shopify store (based in Spain) sells to individuals in another EU member state, you pay taxes in your country as long as the total volume does not exceed the threshold in the destination country. However, starting in July 2021, your store would be required to pay taxes in the consumer’s country once it exceeds €10,000 in revenue.

Additionally, although taxes will be paid in the destination country, there will still be an exemption from customs duties for imports with a value of less than €150.

Lastly, the third point refers to marketplaces. While Shopify has more e-commerce businesses than marketplaces, it’s worth knowing that this new proposal will consider marketplaces as sellers for VAT purposes. They will be responsible for VAT management as long as the user company is not established in the European Union.

Do you want to know more about Shopify’s tax configuration? Don’t miss any of our blog posts, and feel free to ask us your questions. We’re happy to provide advice for your online store’s success.

If you're looking for something more professional, it's undoubtedly best to get in touch with a Shopify expert.

Contact us, and we'll be happy to review your case without any obligation.


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