EU Import VAT Directive: Non-EU Sellers Liable Under New ECOFIN Agreement

The EU's Economic and Financial Affairs Council (ECOFIN) agreed on the Directive on import VAT rules applicable to distance sales of imported goods. The Directive aims to modernize the EU VAT system further and make it more efficient for businesses. Additionally, it aims to shift the import VAT burden from the final consumer to sellers or digital platform operators.

Proposed Changes in the Directive

The 2021 EU VAT e-commerce package included establishing the Import One Stop Shop (IOSS) system for shipments of imported goods or consignments whose value does not exceed EUR 150, the so-called low-value goods not subject to excise duties. 

If the remote sellers, meaning non-EU sellers, are registered under the IOSS, VAT is charged at the point of sale at the VAT rate of the EU country where goods are shipped to. However, if the sellers are not registered in the IOSS, the consumer must pay the import VAT upon delivery.

The proposed Directive includes provisions that aim to shift the burden of paying import VAT from final consumers to sellers when sellers are not registered in the IOSS system. In addition, non-EU sellers will need to appoint tax representatives to reach VAT compliance relating to the in-scope import shipment, with an exemption to sellers established in Norway and the UK.

When the non-EU seller is not registered for the IOSS, the import VAT will be collected directly by the EU country where the imported goods are shipped. Conversely, when sellers from third countries are in the IOSS system, the VAT on the distance sales of imported goods is collected by the seller and paid to the Member State of identification, which transfers the payment to the relevant EU country.

Nevertheless, this is not the end of the process of adopting the Directive. Following the ECOFINS agreement on the text of the Directive, the European Parliament needs to deliver its opinion. Once this procedure is completed, the Directive can be formally adopted by the ECOFIN before being published in the EU’s Official Journal. The proposed effective date is July 1, 2028.

Conclusion

The proposed changes will affect individual non-EU sellers and platform operators selling low-valued goods to consumers in the EU territory, who will be more incentivized to register for IOSS.

Those who do not do that will face more strict requirements regarding the import VAT, including the need to appoint a tax representative. Moreover, the risk of their shipment being held at customs will be significantly larger than for those in the IOSS system. Therefore, non-EU sellers of low-value goods should monitor developments regarding the adoption and implementation of new VAT rules.

Source: European Council, KPMG