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Definitive Guide: July 1st, What happens with VAT/Customs in the EU?

Date: 6/15/2021

I'm sure everyone has heard that the European Union is changing their VAT laws for non-EU countries. The VAT exemption limit is dropped from 22€ to 0€. This change is coming up really quick, starting July 1st. There are a few exceptions you could use to avoid the fees.

In this guide we will do what we do on JadeShip, provide you with well researched information to end the speculation and rumors on reddit.

The information for this article was researched for Germany, it should represent all of Europe fairly well. If you are interested in other countries, we have a full table of information here.

Table of Contents

  1. What was it like until now?
  2. What is it going to be like after July 1st?
    1. In Practice
  3. What are the Exceptions and how can you utilize them?
  4. Agents
  5. A few calculation examples
  6. What does JadeShip think about it and how will we deal with it
  7. Disclaimer

What was it like until now?

Previously there used to be a VAT (Value Added Tax) exemption limit for imports. That meant that customs understood that for items under 22€ of parcel value (item + shipping), the VAT that they would be able to collect would not be worth the effort.

In reality it was as high as 31.24€ in 2020 for Germany because if the VAT was under 5€ it would be waved through. Due to Covid-19 the VAT rate was reduced to 16%, meaning that for 31.24€ you would have to pay 4.99€ in VAT, which would then not be collected.

What is it going to be like after July 1st?

The exemption limit is officially lowered to 0€ (keep reading, it's not entirely true). That means that VAT will have to be collected for every single parcel, a nightmare for customs officers. The reasoning behind this is to protect the domestic market from the strong competition in China, USA and elsewhere.

In Practice

Deutsche Post, the operating company behind DHL announced that they will do the declaration for you. But you will have to pay VAT (most likely at your door) + 6€ in fees and interest to them.

I've went through a very similar procedure, which was used in practice for EMS via GDSK for years. I think I had to pay 7.50€ + taxes for every single day they stored it until they did the customs declaration for me. It made me mad because I couldn't make it go faster. 6€ fixed fee for DHL seems like a good offer in comparison, considering they aren't the ones who are responsible, they are victims as well.

bT from JadeShip.com

AliExpress on the other hand announced that they will add the VAT to the purchase price and then do the declaration for you. So you don't have to pay extra at your doorstep. This seems like a fairly comfortable method for the customer, similar to the new IOSS method described later. It is unclear whether they can provide this service for all shipping services or only their proprietary ones. If you are interested in purchasing from AliExpress you can get started with our AE-based Sites Toy-Links.com or AliTackle.com.

None of this necessarily means that your item gets opened or that you have to provide proof of purchase for everything. They can do that based on the merchants invoice. We will see how this plays out.

What are the exceptions and how can you utilize them?

1€ new de-facto exemption limit

Actually, there is a new de-facto exemption limit again🤦‍♂️. It's 1€ (in Germany). At the German VAT rate (19%) this means that you can order up to 5.23€ without needing to pay VAT.

Does this mean 5.23€ will be the new 22€? Knowing our community, the answer is probably yes. But ordering for 5.23€, which is $6.34 at today's exchange rate, will be a lot harder. My personal experience is that customs only asks about the item price, not the shipping price, if that changes this plan is doomed. Please do not forge invoices.

45€ Gift Exemption

Gifts can still be sent for up to 45€ without paying VAT. The main criteria is that they are sent from a private person to a a private person.

Please don't think that a "Happy Birthday" card is enough to convince customs you are getting Air Jordans from your Grandma.

Business Customers

VAT is generally a consumer tax, and in the end businesses are exempt from it, either by getting it back or offsetting it against the VAT they collected from their own customers. According to the AliExpress news, business customers shopping with a VAT-ID can fly right through customs and do the calculation in their monthly/quarterly/yearly VAT declaration.

This will be interesting for those community members who resell or dropship Taobao or Weidian items.

Import One Stop Shop (IOSS)

The seller or agent can register their business with the European authorities. This then plays out very similar to what AliExpress does: The seller/agent adds the VAT to the purchase price and gives it to the tax authorities on your behalf. That makes it hassle-free for you.

How do our Agents want to deal with it?

We asked all agents we are in contact with to tell us how they plan to proceed, knowing what lays ahead.

  • Wegobuy: In the process of applying for IOSS
  • Superbuy: Built a special team dedicated to finding the best solution
  • Sugargoo: Sugargoo wants to weigh different options. They have released a full press statement
  • CSSbuy: They are waiting to see how it plays out, they want to comply.
  • Ytaopal: no contact, if you know something please let us know.
  • Basetao: no contact, if you know something please let us know.
  • CityGoBuy: Applying for IOSS

A few calculation examples

Item PriceVATService Fees (DHL example)Total Fees
100€19€6€25€ (25%)
22€4.18€6€10.18€ (46%)
10€1.90€6€7.90 (79%)
5.23€0€ (0.99€)0€0€ (0%)

What does JadeShip think about it and how will we deal with it

I think we should see how it plays out. We don't know how customs officers will manage the new workload.

It could force Chinese sellers to become more competitive again and lower their prices and increase their quality.

We are going to see a shift towards heavier parcels with this new policy, as there is no reason to stay close to 22€ anymore. The popular 2kg EUB-SZ parcel declared at 20€ will see a decline. People could say, "well, since I'll be paying VAT anyways I don't have to try to hide anything", and order huge parcels, to a point where the 6€ DHL service fee doesn't matter anymore. I can also see #523 or #523gang for tax-free shipping becoming a thing, there are definitely crazy people who aren't afraid of anything.

Regarding branded products, I actually see this in a positive light. Customs opened so many of my parcels and I only once had a problem because of branded goods. I think I can say that they never cared. With the new workload, they will only care less. I think there's no reason to believe there's a higher chance of your parcel being seized or destroyed after this.

Overall I don't think this is the end of the world. First of all, you have to see the good side, that it provides a level playing field for local shops who had to include VAT in their prices. Even if everything gets a bit more expensive, it'll still be worth it.

Disclaimer

Like everything else on JadeShip this is no legal advice. It's written in layman's terms on purpose. We cannot offer any warranties.

Categories:guide

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