Authors: Kristina Hili, Tax Supervisor, Amanda Abela, Senior Tax Accountant and Maria Spiteri Purkiss, Tax Accountant
Date: 5th March 2021
The main aim for the 2021 VAT changes, which come into force as of 1 July 2021, is to simplify the VAT compliance obligations for taxable persons operating cross-border transactions of either goods or services to final customers and to ensure that the VAT due on such supplies is duly paid to the Member State (MS) of where the customer is established. The changes were originally set to be applicable with effect from 1 January 2021, however the European Commission proposed to postpone the introduction of the new e-commerce VAT rules by six months, which in fact such proposal was adopted by the European Council.
Transactions covered by the 2021 changes
The following transactions are covered by the new provisions of the law:
- Distance sales of goods imported from third territories or third countries carried out by suppliers, except for goods subject to excise duties;
- Intra-community distance sales of goods carried out by suppliers or deemed suppliers;
- Domestic sales of goods by deemed suppliers; and
- Suppliers of services by taxable persons not established within the EU or by taxable persons established within the EU but not in the Member State of consumption to non-taxable persons.
Extension of the current MOSS to OSS
The Mini-One-Stop-Shop (MOSS) scheme, currently applicable to business-to-consumer (B2C) supplies of telecommunications, broadcasting and electronic (TBE) services, will be extended with effect from 1 July 2021 to the One-Stop-Shop (OSS) scheme, covering all types of B2C services as well as intra-community distance sales of goods.
Under the current VAT rules, supplies of goods to end consumers by Maltese businesses (‘MS 1’) to another MS (‘MS 2’), whereby the customer is not registered for VAT in that other state (‘MS 2’), is treated as supplied in the country of dispatch (‘MS 1’), unless the distance sales threshold is breached. Once the distance sales threshold is exceeded, the supply is subject to VAT in line with the VAT rules where the end consumer is established (‘MS 2’). Thresholds vary from one country to another; currently in Malta the distance sales threshold is EUR 35,000.
The new rules require EU based suppliers to report these transactions, which will now be referred to as ‘intra-community distance sales of goods’ under the OSS. B2C operators established in the EU providing intra-community distance sales of goods, will be subject to the VAT rules of the MS where the transport ends. However, if the EUR 10,000 threshold is not exceeded, the intra-community distance sales will be deemed to be taking place in the country of dispatch. The application of the OSS will eliminate the need for multiple VAT registrations in different EU jurisdictions and will ease the compliance burden as EU businesses may opt for the OSS system and will be able to remit the VAT due in other Member States through one return, known as the OSS return.
The following businesses would be eligible to apply for an OSS regime in Malta:
- Taxable persons established in Malta engaged in intra-community distance sales; or
- Taxable persons established outside the EU having a fixed establishment in Malta, engaged in intra-community distance sales; or
- Taxable persons established outside the EU and have no fixed establishment in Malta but is dispatching intra-community distance sales from Malta.
The OSS will also be applicable, with effect from 1 July 2021, to B2C services taking place in a MS other than the MS where the supplier is established. This mainly applies to businesses providing hiring of means of transport (such as the pleasure yacht chartering industry), supply of transport services, and supply of services connected with immovable property. Under the current VAT rules, such suppliers must register in the different Member States where the services are taking place. Through the application of the OSS system, such businesses will no longer be required to retain multiple VAT registration but may opt to declare such services through the OSS regime.
The practicalities of the OSS scheme
A taxable person should notify the Commissioner for Revenue when intra-community distance sales and/or supplies of services falling within the scope of the OSS regime commence or cease through an application filed electronically. The OSS registration would subsequently be cancelled if the taxable person no longer performs such supplies. The OSS return is a calendar quarter return (i.e. January to March, April to June, July to September, October to December) and would be due within 30 days of the end of the calendar quarter.
The Import One Stop Shop (I-OSS)
To complement the OSS system, with effect from 1 July 2021 the Import-One-Stop-Shop (I-OSS) scheme will be introduced. The I-OSS regime applies to distance sales of goods imported from countries outside the EU with value not exceeding EUR 150. Operators have the option to register under the I-OSS scheme and VAT will be charged by the supplier at the point of sale to the EU customer. Therefore, if I-OSS is applied, no VAT would be charged by Customs on importation as is currently being done. This will likely speed up the process as the goods will not be delayed at Customs due to processing and collection of VAT payment. Operators have the option to appoint an intermediary to register under the I-OSS on their behalf. The operator or intermediary will submit a monthly I-OSS return reporting the VAT collected and remit the VAT due to each MS of importation.
The low value consignment relief which exempts from VAT on importation of low-value goods not exceeding EUR 22 will be abolished as of 1 July 2021. To support this measure, suppliers may opt for the I-OSS regime.
The practicalities of the I-OSS scheme
Similar to the OSS, a taxable person or its appointed intermediary should notify the Commission for Revenue when activities falling under this scheme commence or cease through an application filed electronically. The I-OSS return is a monthly declaration and would be due by the end of the following month.
The reason behind these changes is to overcome the barriers to cross-border online sales, in particular challenges arising from the VAT regimes for distance sales of goods and from the importation of low value consignments. The new rules will place EU businesses on equal footing with non-EU businesses, wherein according to the current rules non-EU businesses are not required to charge VAT.
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 Deemed supplier is defined as a taxable person who is deemed to receive the goods from the underlying supplier and to supply the goods to the final customer. The deemed supplier is the taxable person facilitating supplies through an electronic interface.