New EU VAT rules
From 1st January 2021 new EU VAT rules will take effect for all goods coming into the EU from non-European e-commerce business that are directly sent to the end-consumer. Until today, for all goods that didn’t exceeded the value of 22 euro were VAT free to import. This VAT rule will be removed starting 1st January 2021 and will have a huge impact on the “dropshipping” method. Depending on the product, in 2021 you will need to pay a percentage to the EU for value-added tax (VAT).
At the European border, the European tax office looks at two factors:
- Import Tax into the European union
- The delivery to the end-consumer (value-added tax)
If the non-European supplier is sending the goods directly to the end-consumer, there will be two ways to pay import tax and deal with VAT.
- Declare the incoming goods with the new online VAT portal called One Stop Shop (OSS)
- Report in the regular way the declaration
One Stop Shop (OSS)
Let’s say the non-European supplier chooses to make use of the OSS platform:
- Upon import into European union, the non-European supplier gives his OSS VAT identification number to European customs. He needs to sign up to receive an identification number and then pays online import tax. At this moment, he does not have to declare import VAT.
- In every repeated OSS declaration, the non-European supplier declares the VAT at once to all European Union countries he is sending goods to. For example, if you have a parcel with two boxes being sent to end-customers in the Netherlands and Germany, you pay at one point VAT for both countries with the OSS system.
Report regular way
What if the non-European supplier doesn’t have an account with the OSS?
Non-European suppliers can import goods under their company name. They need to apply to each country they are importing to in order to pay import tax. Also, the VAT should be paid for each individual delivery separately in each delivered European country.
With the new EU rules, it becomes more (price) competitive for non-European businesses to sell their goods within the European union. Besides affecting the pricing for your dropshipping method, it will also have an impact on delivery times if the non-European supplier doesn’t sign up for the new OSS platform. Imported goods will only be released at the European border if import tax and VAT is settled. However, it still will be hard for European businesses to price compete with non-European businesses like China. China simply has more bulk factory capacities, lower work labor costs, access to cheap raw materials, and a good infrastructure to move bulk goods in a relatively fast way.
If your business is ready for bulk ordering,this can be a great alternative for replacing your dropshipping method after 1st January 2021. By ordering in bulk not only your unit price will drop significantly but also the import TAX will decrease because your importing by bulk. If you want to discover the possibilities for you business, let’s schedule a call and discuss how we can help you with optimizing your purchase process.