Top 5 things to know when entering the EU market

Note: This is a guest post from SimplyVAT

The European Union  has long been a hotspot for global expansion, providing many international businesses space to grow and find new opportunities. Projected to reach a massive 787.2 million euros in revenue, the EU’s annual growth rate is consistently climbing. Additionally, the number of EU shoppers buying through ecommerce businesses is also set to increase, reaching 569 million by 2025 so there is no better time to expand your online business. With that being said, setting up as an overseas business can incur additional customs costs and VAT compliance requirements which can slow things down if not prepared for.

When planning your big move into the EU, VAT compliance needs to be prioritised, as new rules and legislation have made compliance an essential part of trading within the EU. To help you prepare for success in the world’s largest ecommerce market, we’ve put together 5 essential areas of consideration when selling in the EU in 2022.

1. VAT and audits

With plenty on their plate, international VAT compliance can easily be forgotten by ecommerce sellers. Particularly for international businesses who may use a different sales tax system in their own country, VAT can be a confusing element surrounding EU trade.

Additionally, when operating in a new market you may undergo external audits from tax authorities you may be unfamiliar with. To ensure that businesses are adhering to tax legislation, occasionally a country’s tax authority may perform an audit on your VAT accounts. Through this process, they will complete a detailed check of your records to make sure everything is in order. Audits can be daunting for many businesses, especially when faced with the consequences of non-compliance. If your business is audited, SimplyVAT.com has a team of experts experienced in handling VAT audits who will be happy to help.

2. Trade updates between the UK and EU

In the last two years there have been significant changes in trade legislation between the UK and EU. Where once non-EU based businesses may have used the UK as a staging ground from which to ship freely to EU customers, they will now need to approach each market separately. Whilst the UK has adopted similar measures to the recently introduced EU VAT ecommerce package, there are differences.

For example, both the UK and EU have replaced or scrapped Low Value Consignment Relief. Now, if you are selling to UK customers from your online store based outside of the UK, and your consignment value is below GBP 135, you will need to be VAT registered from your first sale.

If you are following a similar business model but are shipping to EU customers in any member state, with a consignment value below EUR 150, you could register for the IOSS scheme.

As such, if you are planning to access the EU and UK markets as part of your expansion, you must pay close attention to the way compliance can vary.

3. Selling on social media platforms

Businesses selling goods and services on social media platforms have sky-rocketed in recent years. A study conducted by The Harris Poll found that 73% of businesses are participating in social ecommerce, while 79% expect to be up and running on social media in the next three years. Due to this surging trend, integrations with website builders like Shopify have been created, to take your followers directly from social channels to your website.

Selling directly where your customers are is an excellent idea, however with new selling territory comes new compliance obligations to be aware of. Whilst it is easy to start selling on social media, it’s vital that you continue to consider the core principles of VAT compliance by reviewing your supply chain for any VAT registration triggers.

4. VAT considerations for online influencers

Online influencers have created a new entrepreneurial career path, transforming a hobby into a successful industry. Popularised by Instagram and more recently TikTok, online creators are becoming more and more present in the ecommerce landscape. This begs the question of VAT and raises questions that you will need to consider if you are an online creator by profession in 2022.

As an online influencer there are some scenarios that could trigger a VAT registration:

• If you sell goods (merchandise) or digital services – this can create a taxable supply which will depend on where you sell from, what platform you use to sell, where your customers are located, and the value of your supplies.
• If you are paid to post – both UK and EU businesses are required to VAT register after passing domestic thresholds. When being paid to post you will need to calculate your annual income to know if you exceed this amount and need to VAT register.
• If you are sent goods to review – if the goods you are sent could be converted to cash, this is considered a ‘barter transaction’ and refers to any non-monetary form of trading income. This makes the goods taxable in the same way that monetary income is.
• If you accept free gifts for optional promotions – if you are gifted items by brands but are not contractually obligated to create content for them this item is a gift and isn’t taxable. If you are contractually obligated this is and would need to be accounted for.

5. Customer location and VAT

Under the new ecommerce VAT rules, sellers will be expected to determine the location and applicable VAT rates of the products based on where the buyer resides. This means that under the new rules, you will be expected to apply the VAT rate relevant to the nature of the goods you sell and the location of your customers.

Particularly if you use IOSS and sell through your own website, you will be expected to charge the correct local rate of VAT at the point of sale, depending on where your customers are based. To account for this, you may want to review your pricing for the countries where you know your customers are based and re-price accordingly so that the VAT amount is balanced with your profit margins.

Expanding into the EU can seem daunting, but with SimplyVAT.com you have a dedicated VAT partner that can navigate the often-complex world of compliance for you. We have helped thousands of businesses succeed in the EU and continue to assist online sellers every day as they begin expanding.

Get in touch with the team at SimplyVAT to grow your business compliantly in the EU.