EU Moves to Modernize VAT on E-Commerce Imports: What the New Rules Mean

E-Commerce Just Got a New Tax Playbook, But Is It Enough?

The European Union is about to rewrite the rulebook on VAT reporting for imported e-commerce goods. The reform, expected to be approved by finance ministers shortly, removes the €150 threshold for using the Import One-Stop Shop (IOSS) and makes the system more accessible to online sellers.

The goal? Make VAT compliance less painful and plug the billion-euro leak caused by low-value, cross-border goods flowing through the cracks of the EU’s customs regime.

But the devil, as always, is in the design.

The proposal has softened since the European Commission’s original draft. What was once a mandatory shift is now optional, raising questions about the effectiveness of the reform in cracking down on fraud. Still, the IOSS expansion marks a meaningful, cautious step toward a more harmonized, tech-savvy VAT regime across the bloc.

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The Technical Shift: Breaking Down the Reform

Here’s what’s changing:

Elimination of the €150 Threshold

Only goods below €150 can be processed via IOSS, allowing simplified VAT declaration at the point of sale. The new rules remove that limit, allowing all e-commerce sellers to declare and pay VAT on any imported good through a single digital interface.

Implication: Cross-border sellers gain a consistent pathway, regardless of shipment value, streamlining logistics and paperwork.

Optional Use of IOSS

The original proposal required sellers to use IOSS. The revised plan instead encourages voluntary adoption, likely by linking IOSS participation to faster customs clearance and lower administrative burdens.

Implication: This signals political compromise but risks uneven adoption. High-volume platforms may onboard; smaller sellers might remain fragmented.

Read More: One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) Compliance in the European Union

Part of a Broader Customs Overhaul

The VAT update is just one piece of the EU’s larger effort to modernize customs. These reforms aim to combat fraud, digitize processes, and align fiscal enforcement with the explosion of online retail, especially in non-EU countries.

Why Now? The VAT Gap and E-Commerce Surge

The reform addresses two interlinked fiscal headaches:

1. The VAT Gap: In 2021, the EU’s VAT revenue shortfall was estimated at €93 billion, with a substantial share attributed to under-declared or fraudulent imports. Low-value goods, particularly from Asia, often enter via mislabelled invoices or through shell distributors to avoid VAT.
2. E-Commerce Acceleration: Post-pandemic, online shopping continues to surge. Platforms like Temu, AliExpress, and Amazon are pushing volumes of cheap consumer goods into EU markets, often evading full customs scrutiny.

The IOSS was introduced in 2021 to streamline this chaos, allowing sellers to pre-declare VAT at the point of sale. Yet the €150 cap created an apparent loophole that fraudsters exploited by splitting shipments or misreporting values.

Removing the threshold closes that gap only if sellers use the system.

Cross-Border Comparisons: Learning from Elsewhere

United Kingdom: Since Brexit, the UK has imposed VAT on all goods at the point of sale, with platforms like eBay and Amazon required to collect and remit the tax. The model is more centralized and mandatory.

Australia & New Zealand: Both countries implemented a GST-on-imports model with low-value thresholds removed the result: steady revenue increases and simplified compliance for digital marketplaces.

United States: No federal VAT, but the Supreme Court’s Wayfair decision in 2018 enabled states to require out-of-state sellers to collect sales tax. However, patchwork rules still frustrate international compliance.

By comparison, the EU’s approach is relatively cautious of voluntary uptake and incentives rather than strict mandates. This reflects political compromise among member states but may limit the reform’s impact without stronger uptake mechanisms.

For Sellers: What Changes and What Doesn’t

What Changes:

• Sellers no longer need to worry about the €150 ceiling to use IOSS.
• Greater potential for streamlined compliance across the 27-member bloc.
• Improved customs processing for registered IOSS sellers.

What Stays the Same:

• Customs duties will still apply above €150.
• Non-EU sellers still face hurdles unless they register (or use platforms) under IOSS.
• No harmonized enforcement each country retains discretion on incentives and penalties.

In effect, IOSS remains a powerful tool but only as effective as its adoption rate. The revised optional model may defer universal participation, especially among smaller or opportunistic sellers.

Strategic Implications

For Platforms:

Digital marketplaces remain central players. Under EU rules, platforms are deemed VAT collectors when facilitating third-party sales. This makes Amazon, eBay, and Alibaba both enforcers and targets for scrutiny.

Expect pressure to onboard sellers into IOSS systems and standardize VAT handling. Compliance tech will become a core value-add, not just a back-office function.

For Tax Authorities:

Customs fraud and VAT evasion don’t vanish overnight. Authorities need:

• Real-time data-sharing between customs and tax systems.
• Automated cross-checking of shipment value declarations vs platform sales.
• Greater enforcement for non-compliant sellers or drop shippers.

The European Court of Auditors has warned repeatedly that fragmented customs data systems hinder effective VAT enforcement. This reform is a chance to start correcting that.

Human Stakes: Frictionless Trade or Fair Trade?

This may mean faster shipping and fewer surprise VAT bills at the doorstep for consumers IOSS use becomes widespread. However, navigating the new landscape could bring new frictions for sellers in the Global South or small EU firms.

Digital tax equality remains elusive. As enforcement grows more algorithmic, the risk is that tech-savvy violators adapt faster than regulators. The broader overhaul must include support for smaller enterprises, clear onboarding guidance, and tech-neutral tools that don’t tilt the playing field toward major platforms.

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