In the categories of value-added tax (VAT) system changes, everyday people do not take that for granted. Yet, Changes in the VAT regime are instead a crucial concern to manufacturers and their relevant partners. In July, the European Union made adjustments to the VAT regime that eCommerce owners should be aware of, especially those in the logistics business.
This blog post covers the modernized VAT regime and what it entails for logistics business owners.
What is the Modernized VAT Regime?
The 1st of July marked a new age for logistics business in terms of value-added tax (VAT). The idea for the change in the VAT regime was to bring customs regulation for eCommerce and global logistics shipping to the same level as the rate of trade in this period.
The European Union especially listed this change as a global venture to limit the severity of VAT fraud occurring in cross-border eCommerce. In the long term, VAT would be simplified and singular for all parties involved. The simplification does not stop eCommerce, postal operators, and logistics businesses from feeling its effect, and two central components of this modernized VAT regime are:
● eCommerce shipments with a value over $180 are obligated to follow a new tax rule.
● More low-value consignments are to be cleared by customs than ever before due to the end of the VAT exemption on imports.
What does it mean for Logistics businesses?
The change in the VAT regime means that logistics businesses have to follow new importation laws that include:
1. The Import one-stop-shop: Known as IOSS, it is an online platform that allows VAT to be collected at a point of sale by eCommerce logistics businesses. Rather than paying tax on each product sale, eCommerce businesses can submit the total tax fee required at the end of the month to the relevant authorities.
For cross-border eCommerce, this means that the goods delivered by the logistics business will face tax charges upon entry into the EU. If the logistic entity lacks a representative in the EU, it would have to search for an intermediary to process the VAT requirements.
2. Non-registration for the IOSS: The IOSS was created as a non-mandatory platform. Therefore, logistics businesses can choose not to register for the IOSS. All this means that the VAT would have to be collected product and remitted to the tax authority.
And while it might not readily seem like a problem for global eCommerce stores and logistics businesses, it could potentially damage the consumer experience. Consumer experience is hurt by the additional stress and funds required to receive products. Online shopping has become known as a stress-free venture for buyers, but this new import regulation could damage the image of seamless online shopping.
The effect of the import regulation is especially relevant for consumers that purchase products from outside the EU since imported goods are rarely released when all VAT requirements are not in place.
Customer experience has always been paramount in running any business since start-ups cannot exist if there are no customers.
But the new importation regulations and cancellation of the VAT exemption rule (Low-Value Consignment Relief LVCR) can significantly damage a customer experience if eCommerce stores and logistics businesses are not prepared.
Before April 2021, products purchased via eCommerce stores within and outside the EU under $26 were exempt from VAT under the LVCR. Now that the LVCR has been lifted and the new VAT requirements come into play, consumers face a different online shopping experience.
How to Mitigate the Impact of the New Rules On Logistics businesses?
When the EU and its tax regulatory bodies decided to implement these tax changes, the aim is to limit VAT fraud and create a fair market for trade to take place. Keeping in mind that the intentions were pure, the blowback for eCommerce businesses, especially those involved in logistics, can be damaging.
These new regulations may result in a longer delivery time on products, an increase in price to make up for additional VAT duties, and a warehouse cost increment. But there are means by which a logistics business can get ahead of this modernized regime, and they are:
● Educating your workforce to manage the increase in the number of low-value products that will need clearing.
● Informing customers of the role they play in the smooth delivery of their products. This can be done through accurate product descriptions and documentation from shippers.
● Preparing ahead for the end of the LCVR by updating your warehouse and processing locations.
● Encouraging eCommerce businesses to register for the IOSS. Also, inform them of the benefits it holds, especially in terms of customer relations.
Clearly, these amendments could affect global logistics shipping. And the EU has not only acknowledged it but made provisions to alleviate the burden on logistics businesses.
The highlight of the regulation change is an amendment to the Union Customs Code (UCC) with an introduction of the super-reduced dataset (SRDS). The SRDS will include a simplified declaration for products under $176.
While we applaud the EU for considering logistics businesses in their amendment to customs regulation, there is an easier way to handle all your logistic needs.
YunExpress is a professional cross-border eCommerce logistics services provider with over seven years of experience as a global direct line for customers and products. Since the inception, YunExpress has handled more than 700,000 parcel delivery every day. We have over 20 self-operated branch companies with 15000 plus employees working round the clock.
The products we offer include direct cross-border business to consumer lines, postal parcel deliveries, fulfilled by Amazon (FBA) transfers, and international express deliveries.
YunExpress delivers parcels via all modes of transportation.
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