Faced with the increasing number of frauds and abuses concerning the non-payment of VAT during distance selling, especially with the growth of e-commerce in France, the European Commission has established a new VAT dropshipping regime that will be applicable as of July 1, 2021. The main objective of these new provisions is to avoid VAT fraud, which has tended to multiply in recent years with dropshipping.
The interest of this new regime is not only reserved to the public authorities concerned with recovering the billions of euros lost each year due to these frauds. Indeed, these new provisions also include a new single VAT declaration system, in order to facilitate the declaration and payment of VAT by dropshippers. The formalities and costs to declare VAT will therefore be greatly reduced compared to the current applicable regime.
Beware, with the implementation of this new system the few tricks that remained to avoid paying VAT will no longer exist. Therefore, in order to avoid any tax adjustment, we will review with you this new VAT dropshipping regime.
Why are new measures going to be taken in 2021?
To give you an idea of the main problems revealed following the development of dropshipping in recent years, a study conducted by the General Inspectorate of Finance in 2019 reveals some strong figures.
Indeed, according to this study, no less than 98% of the sellers making remote sales in 2019 were not registered for VAT. Of course, these 98% of sellers who do not pay VAT dropshipping are not all exempt from declaring and paying VAT.
Moreover, the pre-2021 VAT dropshipping regime was a breeding ground for dumping. Sellers who do not pay e-commerce VAT and who undercut the prices are causing unfair competition. Therefore, with this new VAT e-commerce regime, you will also benefit from a more protective regime against dumping.
In the end, with the application of these new provisions on a European scale, the European Union estimates that the revenues from online sales VAT will increase by about 7 billion euros per year, spread over all member countries.
More fairness and equality are thus one of the promises of this new VAT dropshipping regime.
Dropshipping VAT: what will change in 2021?
As a dropshipping seller, from July 1st 2021 you will probably be concerned by this new VAT regime if you sell your products to buyers who reside in a European Union member state. The different platforms and marketplaces will also be jointly and severally responsible for the declaration and payment of dropshipping VAT.
Let’s take a closer look at the main changes that are going to be implemented soon regarding VAT dropshipping online sales.
The end of VAT thresholds
When you make a remote sale on the dropshipping model, you are generally subject to the declaration and payment of VAT.
Before 2021, for intra-EU sales, i.e. sales within the EU, the applicable VAT rate depended on the VAT threshold of the country where the buyer resided. As a French dropshipper, if you did not exceed a certain annual turnover of online sales in a particular EU country, you had to declare and pay VAT at the rate applicable in France.
On the other hand, if you exceeded a certain annual turnover that corresponded to the VAT threshold applicable in a country where you make many distance sales, you had to declare yourself as a professional liable for VAT in that country and pay VAT at the rate applicable in that country.
If you made sales in several countries with a large turnover, you had to make several VAT declarations and payments for online sales in all the countries concerned.
To complicate matters, the e-commerce VAT thresholds applicable in different EU member states were not the same. They could vary from 35 000 to 100 000 € of turnover. So you had to check the e-commerce VAT threshold applicable in each country where you made sales.
If you have the ambition – and we hope you do – to increase your international sales, don’t worry, because the new VAT regime has been designed to greatly simplify these formalities.
Indeed, from July 1st 2021 these VAT thresholds will be abolished. Therefore, no more headaches, the principle is that you will have to charge the VAT of the country where the buyer resides.
Good to know : Small businesses (e.g. micro-businesses) with an annual turnover that does not exceed €10,000 during the last 2 years of activity can apply the VAT of the country where they are domiciled. In other words, if you are a dropshipper domiciled in France with less than €10,000 of sales per year to EU countries in the last 2 years, you can apply the VAT rate applicable in France and pay the VAT to the French tax authorities.
As a reminder, the thresholds applicable in France to benefit from the VAT exemption remain unchanged. These thresholds remain at 34 400 € for services and 85 800 € for commercial activities such as dropshipping. So don’t confuse the VAT to be charged to your customers and the import VAT when you buy imported products to resell them to your customers.