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Cyprus VAT Update

07 February 2017

European Commission proposes new VAT rules to support e-commerce and online businesses in the EU

On December 2016, the European Commission (“EC”) has announced various VAT proposals which aim to improve the VAT environment for e-commerce businesses in the EU. These proposals will allow consumers and companies, in particular start-ups and SMEs to trade in goods and services electronically more easily.

The EC in particular proposed the following: 

  1. New rules allowing companies that sell goods online to deal easily with all their EU VAT obligations in one place. 
  2. To simplify VAT rules for startups and micro businesses selling online, VAT on cross border sales under €100.000 will be handled domestically. 
  3. Action against VAT fraud from outside the EU, which can distort the market and create unfair competition. 
  4. To enable Member States to reduce VAT rates for e-publications such as e-books and online newspapers.

All the above legislative proposals will be submitted to the European Parliament for consultation and to the Council for adoption.

The proposed new VAT rules in more detail

  1. New VAT Rules for sales of goods and services online

    Currently online traders have to register for VAT in all the European Countries to which they sell goods.

    EC has now proposed that such businesses would make one simple quarterly VAT return for the VAT due across the whole of the EU by using the VAT online One Stop Shop (system already being in place and functional for electronic, telecommunication and broadcasting services). With this proposal, the administrative burden is estimated to be reduced by up to 95% for such businesses while at the same time VAT revenues for Member States may be increased significantly.
  2. Simplifying rules for micro businesses and startups 

    A new yearly threshold of €10.000 in online sales will be introduced under which businesses selling cross border can continue to apply the VAT rules which are used in their home country. This will make complying with VAT rules much easier. 

    Also a new yearly threshold of €100.000 will be introduced in relation to SMEs selling online services with simplified rules for identifying where their customers are based (relaxing the current requirement for collection of two pieces of evidence to just one).

    These thresholds could be applied in 2018 for services and by 2021 for online sales of goods.
  3. Action against VAT fraud from outside the EU 

    Small consignments imported into the EU valued less than €22 are currently exempt from VAT. The EC has decided to remove this exemption so as to eliminate the potential for fraud and VAT abuse and to eliminate the disadvantage that is presently faced by EU companies that are liable to apply VAT  irrespective of value.
  4. Equal rules for taxing e-books, e-newspapers and their printed equivalents

    Current rules allow Member States to tax printed publications such as books and newspapers at reduced or zero VAT rates but e-publications are taxed at the standard VAT rate. Once agreed by all Member States, the new rules will allow (but not oblige) Member States to align the VAT rates on e-publications to those on printed publications.


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