Taxes & business banking for the self-employed


New rules for e-commerce and taxation: what freelancers and self-employed people need to know

Kate Bailey

Freelance Editor

Oct 2, 2021

E-commerce, the sales of goods and services online, has become the primary income stream for many freelancers and self-employed people and even more so in light of the impact of the pandemic on proximity working. This, therefore, has all sorts of implications depending on how you are invoicing your clients, processing payments and where you AND your client is located. We are living in a global world, so let’s break down some new changes for all you global gals (and thems, and hims) who may need some guidance if you are selling your services or physical goods online.

Some of you may find you need to go this extra step, beyond the basics for freelancers and VAT. The aim of these new rules is to reduce the administrative burden and costs for the e-commerce industry and to create a level playing field for E.U. and non-E.U. companies. Today, non-E.U. sellers often do not charge E.U. VAT on their sales in the E.U..

The essence of the new rules is that for distance sales, the seller (almost) always has to charge VAT in the buyer's Member State. In principle, this is also the case if the goods come from a third country and are therefore imported beforehand. Originally planned for January 1, 2021, the entry into force was postponed to July 1, 2021 due to the corona crisis.

At the E.U. level, this timely implementation of the digital package / e-commerce package shows the prioritized implementation of the strategy for the digital single market. By extending the applicability of the central contact point (one stop shop), online / mail order retailers, in particular, are exempted from the obligation to register their customers for VAT in each E.U. member state. The planned regulations and simplifications are therefore to be welcomed in particular from an administrative / IT-technical point of view for entrepreneurs and practitioners. This leads to a reduction in administrative work and thus also to cost savings in the long term. In addition, legal certainty is created through uniform threshold values ​​and simple application of the law when issuing invoices.

Abolition of the existing thresholds for intra-Community distance sales to non-entrepreneurs and introduction of a simplification measure for such distance sales

According to the previous regulations, the seller may continue to charge the VAT of his country of residence on these cross-border intra-community distance sales as long as his sales in the buyer's Member State do not exceed a certain threshold. These thresholds are now being abolished. If the seller's intra-Community turnover from distance sales (and from telecommunications, broadcasting and electronically provided services) exceeds the annual threshold of EUR 10,000, they must immediately invoice the VAT of the Member State of the B2C customer.

From now on, however, the seller can carry out all of his compliance obligations through the OSS portal ("one-stop-shop" or "one stop shop"). A separate VAT identification number in each individual member state is no longer required, except in the Member States in which one has a registered office or warehouse. Even sellers who are not based in the E.U. can use this procedure. As soon as a company decides to use the OSS, all sales in Member States that do not have a warehouse must be made using the OSS.

However, the application of the OSS procedure is not an obligation. One can still choose to continue doing everything through local VAT identification numbers and declarations. Of course, regardless, the stands obligations of the German tax. And of course, these were changes long in the works, but do tie in with the way Corona is changing the economy.

Introduction of simplification measures for distance sales from third countries

In addition to the adjustment of the rules for intra-Community distance sales, a new regulation is foreseen for the distance selling of goods from third countries, which must be introduced in the E.U. before delivery to B2C customers. So far, the normal import procedure has to be used, i.e. (i) either the seller imports in his own name and then carries out an intra-community distance sale, for which local VAT identification numbers and compliance with the compliance obligations are required to account for the import sales tax and the VAT in the E.U. member state of the customer, (ii) or the seller disregards this and the courier collects the import sales tax (and customs duties) from the private customer.

As of July 1, 2021, imports and subsequent sales to B2C customers of consignments with a maximum value of EUR 150 can be processed via two simplified VAT regulations:

  • Via the IOSS ("Import One Stop Shop") import regulation: This implies that the VAT that is due on distance sales from third countries in the E.U. member state in which the ordered items are delivered are reported and paid via the IOSS portal. The import of these goods is exempt from VAT and the customs procedures are simplified. To do this, however, the seller's IOSS VAT identification number must be communicated to the customs authorities. The seller must therefore have registered with the IOSS beforehand.

  • About the non-IOSS special regulation for the declaration and payment of VAT on import:   If the goods are released for free circulation in the E.U. member state in which the goods are delivered to the end consumer, this second simplification can also be used will. This consists in the fact that postal operators, courier service providers or other customs agents take care of the import formalities and pay the VAT on behalf of the buyer. This allows the seller to avoid local VAT registration.

Of course, the standard procedure for collecting VAT on import can still be used in the above-mentioned cases. This also remains mandatory if the requirements for the application of the above-mentioned special import regulations are not met (e.g. if the material value of the imported goods exceeds EUR 150).

Abolition of the VAT exemption for the import of small-value shipments up to EUR 22,00

In addition to the introduction of the simplified import procedure for consignments with a material value of up to EUR 150, as explained above, the VAT exemption for consignments up toEUR 22 will also be abolished. This should prevent non-E.U. companies from continuing to deliver VAT-free to the E.U. and from being able to benefit from a clear trade advantage over their E.U.-based competitors.

New VAT obligations for electronic interfaces such as web shops, marketplaces and platforms

Things will also change for electronic marketplaces and sellers who sell through these marketplaces, at least if in connection with these online sales:

  • Shipments with a material value of no more than EUR 150 are imported into the E.U. (regardless of whether the underlying seller is located inside or outside the E.U.), or
  • the underlying seller is not based in the E.U. (in this case it does not matter whether the goods come from a warehouse inside or outside the E.U. and what their value is).

In both cases, operators of an electronic interface, for example a marketplace or a platform, fictitiously assume that they received the goods themselves from the seller and then sold them to the customer. This applies to both electronic interfaces that are located inside and outside the E.U.. As a "fictitious seller", this VAT must be collected and paid on these sales in the country of the end consumer. The electronic interfaces can also use the OSS and IOSS processes for this purpose.


Expansion of the existing MOSS regulation to include services

A "Mini-OSS" (MOSS) has existed since 2015, to declare and pay VAT for telecommunications, radio, television and electronically provided services (ie largely automated services, with little or no human intervention) to B2C -Customers in the E.U.. By expanding the scope of the MOSS to an OSS (no longer mini), from July 1, 2021, other B2C services that are subject to VAT in accordance with the special localization rules in the E.U. member state where the B2C customer is based (e.g. Rental of means of transport, services related to real estate and events, etc.) VAT must be declared and paid.

Since April 1, 2021, you could pre-register for the (I) OSS in most member states if you want to use these regulations. Please note that the new "simplification measures" can also result in additional accounting requirements and complexities.

In many cases, the ERP system has to be adapted in order to immediately record the correct delivery location, the correct local VAT rates, the different currencies, etc. Companies that use the OSS to declare their distance sales or (electronic) services no longer have to take into account the invoicing regulations of the customer's member state. Instead, the rules of the member state of the OSS identification apply from now on.

Hopefully you know a little more...

Whether all these measures really bring the hoped-for simplifications can only be assessed once everything has come into effect and it has been but just a handful of months. The difficulty for freelancers and self-employed people will often be to decide what to report in the periodic VAT return and what to report in the (I) OSS declaration, especially if they, as online sellers, hold stocks in different countries (e.g. with logistics partners). We can expect this process to take some time and for confusion to be rife - as you can read above - it is complicated.

It is framed as complicated for a higher simpler goal and even if we want to debate that, we surely cannot stop it. That said, for freelancers and self employed with a global mindset and client base this could be a step in the right direction for all.