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GUEST COMMENT Less online sales to Europe due to new EU VAT Package – can it be fixed?

Image courtesy of empact

Image courtesy of empact

Last July, the EU introduced a new regulation to locally collect VAT on online sales. This resulted in a sharp decrease in ecommerce sales to Europe. What’s the problem exactly? Can it be overcome? And how do new technology solutions come into play?

Ecommerce sales to Europe in significant decline

It’s been 8 months since the new EU VAT regulation has entered into full force. For those of you who aren’t aware – the EU has decided to impose VAT taxes on cross-border ecommerce sales from anywhere in the world. This was done in order to prevent tax loss by European governments due to the prevailing ecommerce landscape, where no VAT was paid on international sales for most transactions.

The enforcement of the new EU VAT Package has started on July 1st, 2021, and the results are already clear: cross-border ecommerce sales to the EU are down significantly. The UK, an exporting county post-Brexit, faced a 41% decline in exported UK goods as a result. Customers have decreased their shopping from international sellers, or more likely the opposite – less sellers are selling less merchandise into Europe.

What’s the problem with the new EU VAT regulation?

The new EU VAT regulations have imposed new requirements on international sellers. Sellers are now required to register for VAT at the EU, have an Import One Stop Shop (IOSS) entity to represent them in Europe, and provide their registration numbers on each sale and parcel shipped to Europe. When importing stock to frontline warehouses in Europe, more registration numbers are required: OSS number for inter-continental VAT tracking and an additional VAT number for each EU member state where stock is managed. Online marketplaces, such as Amazon with their FBA service, have partially figured it out for small sellers with annual EU sales of less than €10,000, but large e-tailers need to supply their registration numbers to the marketplaces and logistics companies, and the burden is substantial.

Even if sellers could handle the new bureaucracy, economics for exporting goods to Europe are simply worse. The cost of goods sold has increased as a result of the need to accommodate the new regulations. Many sellers have turned to European lawyers, accountants, and intermediaries (commissionaires) to help them understand the new regime and alter their workflows accordingly. Not only is it time-consuming, but also they’ve incurred considerable cost, including recurring operational costs in maintaining entities in bookkeeping in Europe.

European consumers stand to lose

International sellers have seen their costs go up and had to increase prices to maintain their profit margins. European consumers saw their prices increase even more dramatically.

As a result, many retailers, ecommerce sellers and dropshippers have taken an unfortunate decision – to cease selling in Europe. Since international sales to Europe have become less profitable and product prices with the required VAT are less competitive in comparison to local ones, cross-border sellers find less reason to do business in Europe. Some sellers have simply not changed their practice following the new regulation and their customers suddenly saw their packages stalled at customs, requiring them to pay VAT manually as a requirement for their release. Logistics companies have seen products not claimed or returned, and suffered their share of headaches as a result.

The bottom line is simple. Currently, consumers in Europe have less choice – they can shop with their expensive local vendors and their limited offerings or shop abroad with a smaller circle of UK or other international sellers, who have had to increase the price of their products. Despite the intention of EU authorities to implement a more efficient, even friendly, VAT reporting infrastructure, the data shows that there are some undesired consequences for the regulation that negatively impact cross-border ecommerce and European consumers.

Now what? What could restore ecommerce sales in Europe?

Ecommerce is the present and future of commerce and trade. It’s in the interest of governments, retailers, and consumers that ecommerce will thrive.

Considering the fact that the EU VAT Package is a new regulation, there’s plenty of room for solutions that better accommodate the changes. Most workarounds are by professional services companies who manually take care of business of sellers that are willing to pay the price.

However, this reality is starting to change. New types of players are starting to emerge and provide an answer to the new regulatory landscape. Take empact for example. empact is a complete SaaS platform for EU VAT tax compliance that serves global ecommerce businesses. The Netherlands-based technology startup is providing online sellers with everything they need to remain compliant, keep selling products in Europe, and profit from smart tax calculation and automation technology.

Neomi Dov, Founder and CEO at empact, explains: “We let international sellers act like local EU businesses, from afar, so they can offer competitive pricing and win more business. Our platform is especially useful for UK sellers that saw their sales and logistics crush one single day. With empact, sellers instantly get all VAT, IOSS, and OSS numbers, and within a day – sell in Europe, with full compliance. We integrate seamlessly with their marketplace stores and take all responsibility for their VAT in Europe. Everything is done automatically on our end to empower sellers to focus on their business. Sellers also get real-time transparency on all transactions, logistics, and tax filing.”

The path forward

New rules usually create a lot of uncertainty and require a lot of work to comply with. Still, commerce is a force of nature, it is strong, and it will prevail. In the coming years, we’ll see sellers find innovative ways to continue supplying goods to European consumers.

Authors:

Eran Miller, vice president for business development at empact

Oded Israeli, chief marketing officer at empact

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