Stricter e-commerce rules coming in July 2021
Online Retail Sector

Stricter e-commerce rules coming in July 2021

Low-value consignments will be subject to VAT starting July 1, and online merchants will face stricter requirements to prove product compliance starting July 16, 2021.

Europe is awash in a flood of cheap packages: The share of retailers from China on Amazon’s marketplaces has surged in recent years. In some European countries, over half of online orders now come from China. Why is this? The prices are typically lower than what European retailers can offer. The opportunity for direct sales without middlemen is one factor, but in some cases this trend is fueled by unfair practices such as under-invoicing to avoid taxes or getting around product compliance and safety testing requirements. The EU plans decisive action to counteract this starting in July.


A level playing field: eliminating the exemption

The elimination of the €22 exemption on July 1 affects all online purchases shipped directly from non-EU countries such as China, the US, or the UK. Anyone using an online marketplace to order goods from a supplier outside the EU after that date will pay import VAT. The EU expects this change to generate increased tax revenues of €7 billion annually.
Sellers who register for the Import One-Stop Shop (IOSS) in an EU country and file monthly tax statements can collect import VAT directly from their European customers. Their goods shipments will then be waved through customs if the declared value does not exceed €150 and is not subject to any bans or restrictions. A side note: Shipments with an invoice amount under €5.24 remain exempt from VAT even after July 1, because duties under €1 are not levied (in Germany).

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Another focus: product safety and compliance

Another major source of problems, aside from the often illicitly claimed exemption for imports, is the quality and safety of products and access to sellers. The Danish Chamber of Commerce published an alarming study on this topic.  It revealed that among 50 shipments from China that were examined, all 50 had mismatched seller and shipper data, and 46 failed to comply with EU product safety requirements. In just as many cases, the value of the items indicated on the packaging differed from the price on the invoice. And the list goes on. The EU has responded by introducing new market surveillance and product compliance rules. The aim is to level the competitive playing field and prevent dangerous and non-compliant products from entering the EU marketplace.

New EU market surveillance regulation: key changes

Regulation (EU) 2019/1020 of the European Parliament and of the Council of 20 June 2019 on market surveillance and compliance of products amends the previous rules for ensuring product compliance to meet the challenges posed by e-commerce. The general terms enter into force on July 16, 2021.

The key changes for online retailers:

  • Products in online marketplaces must satisfy EU compliance rules the moment they are marketed to EU consumers, and it must be possible for market surveillance authorities to check this compliance (see Annex I of the Regulation). Whether products are marketed to consumers in EU member states is determined by the language settings on the product page and the shipping and payment terms on the platform. 
  • Some goods require that an EU service provider handle fulfillment if there is no EU manufacturer, importer, or authorized representative in this role. The market surveillance authorities will work with the fulfillment service provider for product checks of the product groups listed in Article 4, subsection 5 of the regulation.
  • The EU Single Window is a central point of contact designed to optimize the cooperation between customs and markets surveillance authorities.

What role does the fulfillment service provider play?

Fulfillment service providers are typically responsible for storing, packaging, labeling, and shipping products brought into the EU by non-EU merchants. Postal, parcel, and other freight delivery service providers are not considered fulfillment service providers.
Manufacturers with registered offices in the EU are responsible to the authorities for their products. If a manufacturer does not have registered offices in the EU, the responsibility passes to an EU-based importer that brings the product into circulation or to a representative authorized by the manufacturer. In the absence of any of the aforementioned economic operators in the EU, the fulfillment service provider assumes responsibility for declarations of conformity and performance and serves as the point of contact for the market surveillance authorities.
The areas in which the fulfillment service provider bears this responsibility include toys, electrical equipment, radio equipment and electromagnetic compatibility, the restriction of hazardous substances in electrical and electronic equipment (“RoHS”) and environmentally sound design of energy-related products (“ecodesign”), gas appliances, construction products, machinery, equipment used outdoors (“noise emission”), equipment for use in potentially explosive atmospheres (“ATEX”), pressure equipment, simple pressure vessels, pyrotechnic articles, recreational craft, measuring instruments, non-automatic weighing instruments, and personal protective equipment.

Who is monitoring this? Market surveillance and customs

Strict market surveillance, tightened compliance checks, and closer cross-border cooperation between market surveillance and customs authorities will, the authors of this amended regulation hope, stem the influx of non-EU compliant products. Products found to be defective can, upon import, be blocked from release into free circulation. Online merchants can be required to remove the products from their sites or display warnings.
Circumventing the regulations will now be increasingly difficult – though certainly not impossible. And it remains to be seen how many retailers will avoid paying VAT on their goods by citing values below the €5.24 threshold on their packaging. But the changes represent important steps toward a more level playing field.