Selling Goods to the EU? ECOFIN just approved VAT Directive for Imported Goods

This week the Economic and Financial Affairs Council (ECOFIN) presented a draft directive aimed at streamlining Value Added Tax (VAT) rules for sales of imported goods.

The primary objective of this directive is to enhance VAT collection on imports by holding sellers accountable for the VAT due, thereby incentivizing participation in the Import One-Stop Shop (IOSS) system.

Current VAT Rules
IOSS was introduced in 2021 as part of the EU’s VAT e-commerce reforms. It was designed to streamline VAT collection on distance sales of goods imported from outside the EU to consumers within the EU. The IOSS applies to shipments valued at €150 or less. Under this system, sellers can charge VAT at the point of sale, based on the rate in the buyer’s EU country. They then report and pay VAT monthly via the IOSS portal.

If a business is not registered for the IOSS, the customer pays VAT on delivery, with collection typically handled by postal or courier services (known as the “special arrangement”). For goods above €150, standard import VAT rules remain in effect.

New Directive
Under the new proposal, sellers or platforms facilitating sales are be liable for import VAT if they are not IOSS-registered. Non-EU businesses without IOSS registration need to appoint a tax representative to handle VAT obligations for sales of goods valued under €150.

In other words, non-EU sellers will be responsible for VAT payments in the EU country where the goods are ultimately delivered. This change encourages broader adoption of the IOSS, since those who choose not to use the system would need to register for VAT in each member state individually.

By allowing VAT to be collected at the time of purchase rather than at the point of entry, the IOSS not improves compliance. The directive shifts the responsibility for VAT collection from consumers to digital platforms.

Future System
On May 17, 2023, the European Commission introduced a customs reform package containing three legislative measures, including the current VAT directive. While the original draft proposed eliminating the VAT exemption on goods under €150, the Council has chosen to address that issue separately as part of ongoing customs reform talks.

For now, the focus remains on increasing the use of the IOSS as a means to modernize and improve VAT collection for cross-border e-commerce.

The European Parliament will review and provide feedback on the agreed draft. The current implementation date is set for July 1, 2028.

To plan your VAT registration and learn more please email us at vat@eurovat.com

Return to Latest VAT News