Country Correspondent: Athina Stephanou 

Article written by Mrs Haris Hadjimichael, Senior VAT Officer

Cyprus as a Member State of the European Union will need to follow the new rules that will apply as from 1st July 2021.

More specifically, a number of amendments to Directive 2006/112/EC (the VAT Directive) will start to apply, affecting the VAT rules applicable to cross-border business-to-consumer (B2C) e-commerce activities. The Council adopted these rules by Directive 2017/2455 in December 2017 and Directive 2019/1995 in November 2019 (VAT e-commerce Directives).

The rationale for these changes is to overcome the barriers to cross-border online sales. In particular, the changes will address challenges arising from:

1. the VAT regimes for distance sales of goods; and 

1. the importation of low value consignments. 

Currently, based on the VAT Directive, regarding the VAT regimes for distance sales of goods, EU businesses selling goods online to final consumers located in other Member States need to register and account for VAT in the Member State of the consumer when their sales exceed the distance sales threshold, which is either EUR 35,000 or EUR 100,000 (decision exercised by the Member State). This imposes a significant administrative burden on traders and impedes the development of intra-EU online trade.

Regarding the importation of low value consignments, a VAT exemption is granted up to EUR 22 which has been proven to lead to abusive practices, allowing non EU business selling goods from 3rd countries to consumers in the EU to make VAT-free supplies into the EU leading Member States to lose part of their tax revenues.

Furthermore, as they are not required to register for VAT, these non-EU businesses profit from a clear commercial advantage compared to their EU established competitors.

Therefore, the new rules will place EU businesses on equal footing with non-EU businesses and at the same time will simplify VAT obligations for businesses engaged in cross-border e-commerce. 

The main changes are the following:

• The VAT Mini One Stop Shop (MOSS) currently allowing suppliers of telecommunications, broadcasting and electronically supplied (TBE) services to register for VAT in one Member State and to account in that Member State for the VAT due in other Member States, will be extended to other B2C services, to intra-Community distance sales of goods as well as to certain domestic supplies of goods, thus resulting in a bigger One Stop Shop (OSS);

• The existing threshold for intra-Community distance sales of goods will be abolished and replaced by a new EU-wide threshold of EUR 10 000 below which the supplies of TBE services and intra-Community distance sales of goods may remain subject to VAT in the Member State where the taxable person supplying those TBE services is established or where those goods are located at the time when their dispatch or transport begins;

• Special provisions will be introduced whereby a business facilitating supplies through the use of an online electronic interface is deemed for VAT purposes to have received and supplied the goods themselves (“deemed supplier”);

• The VAT exemption at importation of small consignments up to EUR 22 will be removed and a new special scheme for distance sales of goods imported from third territories or third countries of an intrinsic value not exceeding EUR 150 will be created and is referred to as the Import One Stop Shop (IOSS);

• Simplification measures for distance sales of imported goods in consignments not exceeding EUR 150 will be introduced, in case the IOSS is not used (special arrangements); 

• New record-keeping requirements will be introduced for businesses facilitating supplies of goods and services through the use of an electronic interface, including where the electronic interface is not a deemed supplier.

As an ending note it must be pointed out that this is a major and challenging change for the EU e-commerce market both for business as well as tax administrations.