New VAT regulations for ecommerce within the EU
Do you run a webshop and do you supply products to foreign consumers within the EU, generating annual turnover of EUR 10,000 or more? If so, then significant changes to the VAT regime are scheduled to come into force from 1 July 2021. These changes will make the rules and regulations clearer and more understandable for businesses. In this article, we focus on various scenarios and walk you through the most important changes. As a result, you’ll be well-prepared and you won’t encounter any nasty surprises come 1 July.
EU customers do not pay the Dutch VAT rate, instead they pay the rates applicable in their own countries
The most significant changes will involve the threshold amounts and the country in which you pay VAT. While at the moment you, as a business, are liable for VAT in the country where shipment starts, VAT will – from 1 July 2021 – become payable in the country where shipment terminates. So, if you sell a product to a consumer from e.g. Germany, you will charge the consumer VAT rate applicable in Germany. However, the rules for commercial orders are different for companies within the EU. In this case, no VAT is payable. This also applies to all orders from countries outside the EU. If your turnover from foreign sales within the EU is lower than EUR 10,000, nothing will change for you. In that case, you’ll simply charge the Dutch VAT rate as you did prior to 1 July.
Do you charge a single fixed price or different prices per country?
Generating turnover of more than EUR 10,000 therefore means that you will charge and pay different VAT rates depending on which EU country your customer is based in
You can choose from two different price models:
- A single equal retail price for all countries
- A base price to which local VAT is added
As an advantage of the first model, your pricing policy will be the same throughout Europe, and therefore clear to consumers. The disadvantage is that the price excluding VAT will differ per country, depending on the VAT percentage applicable in the country in question. This means that your profit margin may vary per country and your bottom line might be affected.
When it comes to the second model, your pricing policy will be less transparent to consumers because your retail price will differ per country. The advantage here is that the price excluding VAT will be the same for all countries, so your bottom line will also remain consistent.
Examples of price models 1 and 2.
|Price model 1|
Equal retail price
121,- (including VAT)
|Price model 2|
Fixed base price
100,- (excluding VAT)
|The Netherlands (21% VAT)||Retail price: 121,-|
Base price: 100,-
|Retail price: 121,-|
Base price: 100,-
|Germany (16% btw)||Retail price: 121,-|
Base price: 104,30
|Retail price: 116,-|
Base price: 100,-
|Denmark (25% btw)||Retail price: 121,-|
Base price 96,80
|Retail price: 125,-|
Base price: 100,-
The same price for all countries
If you’ve chosen price model 1, your prices will already be correctly recorded in your Craft Commerce webshop, because all prices in Craft include VAT. In order to comply with the new rules, you’ll have to add VAT settings in your Craft environment for all the countries in which you sell your products and specify that VAT should be ‘reverse charged’. As a major advantage of this option, the same price including VAT will be displayed throughout your website. If your webshop automatically compiles invoices, go through the invoice settings and make sure that the right VAT rates are always specified. In theory, however, your webshop requires no further adjustments if you use price model 1.
Different prices per country
If you’ve chosen price model 2 and therefore intend to apply different retail prices to different countries, further adjustments will be necessary. That’s because all prices are currently reflected inclusive of VAT in Craft CMS. For this model to work properly, all prices will have to be converted to base prices. In this case, you’ll no longer charge a retail price. Instead, you will charge a price excluding VAT.
Take the following steps to prepare your website:
- If you manage your prices in Craft, then adjust your prices to suit the new model via your CMS.
- If your prices are managed by a checkout system connected to Craft, an adjustment to the connection will be required to ensure that the prices follow the new route to Craft.
- Once all your prices are correctly adjusted, set the right VAT rate per country.
- Add a country selection field, using e.g. an overlay or popup. Craft can only display the right prices if it knows what country the visitor is from.
- If your webshop also generates automated invoices, check the invoice settings to make sure that the right VAT rates are specified
Commercial orders from abroad
A useful feature has been added – to Craft Commerce 3 (Pro version) and later versions – that facilitates the receipt of commercial orders from other EU countries. Although no VAT applies to these orders, you have to be sure that you’re dealing with an actual company. To do this, you’ll need your commercial customer’s valid VAT number. Craft has been connected to the European VAT register, so the submission of a valid VAT number now gets verified for every commercial order. If a VAT number is valid, Craft makes sure that the purchase is completed with 0% VAT. This saves precious time and the effort required to make corrections at a later stage.
Make sure that you’re well-prepared
With this useful diagram, you can quickly check whether the new VAT regulations apply to you and find out what steps you should take. If your turnover is currently less than EUR 10,000 but you expect it to rise above that figure, it would be wise to make the necessary arrangements in advance. When it comes to your Craft webshop, we can – when necessary – help you set it up correctly so that you’re well-prepared for the second half of the year in terms of VAT. However, make sure that your administration processes are ready for these imminent changes, perhaps in conjunction with your accountant. Important issues are invoicing and being aware of the rules on VAT returns.
Feel free to contact us. We’d be delighted to help!