It’s all changing in the EU when it comes to eCommerce.
If you thought the Wayfair v. South Dakota ruling had a big impact on eCommerce, try operating in the European market for more than a couple of months.
From VAT changes and proposed digital taxes to the UK on the brink of no-deal Brexit, there is plenty that you need to keep an eye on.
These changes all arrive as online shopping continues to grow in Europe. Helping drive that growth are cross-border sales. Cross-border sales generated revenue of €95 billion in 2018, according to the team at Ecommerce News Europe. Cross-border revenue accounted for 22.8% of all online sales in that year.
Growth isn’t equal between nations, however, says Nina Angelovsk, Co-Founder and CEO of Grouper.mk. Drawing on data from DPDGroup the UN Conference on Trade and Development, Angelovsk notes that the UK continues to lead the way when it comes to eCommerce and offers the best opportunities for eCommerce brands. Not only is the UK ranked No. 1 in readiness for eCommerce development, but the country also has the highest average number of online purchases per capita at 10.8.
Whether you’re thinking about entering the market or are already an established player on the continent, here’s what you need to know about doing business in the EU in 2019 and beyond.
The Threat of a No-Deal Brexit Rises Again
The UK’s position at the center of European eCommerce is under threat. The country’s new pro-Brexit prime minister, Boris Johnson, has repeatedly said that the country will leave the EU by the October 31 deadline, come what may.
In the event of a no-deal Brexit, Trusted Shop’s Alon Eisenberg believes the UK will lose all four EU freedoms: the free movement of goods, labor, capital and services. “For e-commerce, this would mean that goods from the UK to the EU won’t be sold in the internal market, but from a third country to the EU,” Eisenberg writes. “Therefore, customs duties might apply, making EU trade more expensive for UK retailers.”
Eisenberg points to UK fashion retailers in particular, which have big customer bases on the continent but could lose ground to member-state retailers that, all of a sudden, would have a new competitive advantage: price.
This is because a no-deal Brexit would likely mean a return to WTO trading rules, says Alexandre Grela, Founder of the agency Europa DSI. As a result, UK brands could face tariffs of up to 30%.
That’s not all, however. The team at ChannelEngine notes that shipping, merchandise and fulfillment costs will all likely increase, too. Retailers will also have to deal with the headache of customs arrangements.
With a hard Brexit looking very possible, Tamebay’s Chris Dawson urges retailers to be ready for when it hits. Dawson recommends businesses do the following:
- Switch to a paperless clearance system to avoid costly clerical errors that will come with the increase in paperwork.
- Prepare for supply chain delays, and keep good communication channels with delivery providers and customers.
- Be transparent about any new duties and taxes, including who foots the bill.
EU Simplifies VAT But Cracks Down on Marketplaces
Over the last few years, the EU has agreed to simplify rules governing VAT due on the sale of physical goods within the EU.
KPMG’s Gladys Cristiaensen explains that, starting in 2021, online retailers will only have to register for and charge VAT in a single member state, rather than request a local VAT identification number for every single customer. This should significantly simplify and reduce the administrative costs of VAT collection for both retailers and the EU.
VAT rules for marketplaces are also changing, report Bloomberg’s Hamza Ali, Isabel Gottlieb, Ryan Prete and Benjamin Parkin. Also starting in 2021, marketplaces like Amazon and eBay will be required to collect VAT from customers within the EU.
“The online companies would have to collect VAT even if the transactions take place through warehouses based in the EU, according to implementing regulations adopted Dec. 11, 2018, by the European Commission,” they report.
Digital Sales Tax Looking Increasingly Unlikely
The EU appears to have completely ditched plans for a digital sales tax.
eCommerce brands have Ireland, Sweden and Denmark to thank. EURACTIV’s Jorge Valero reports that it was opposition from these three countries that forced EU ministers to kill the bill in favor of working toward a global solution to taxing digital companies.
Even states that are proposing a digital tax on a national level will likely hit roadblocks. In the UK, for instance, Retail Gazette’s Elias Jahshan reports that a proposed online sales tax would be deemed illegal under EU laws. It would remain illegal even if the UK left the EU, as long as the UK continued to align itself with EU laws.
In France, where a digital tax looks more likely to come into effect than anywhere else, legislation is under investigation by the US government. If it’s found that the policy amounts to an unfair trade practice, the US may respond with retaliatory tariffs, reports The New York Times’ Ana Swanson.
Although the proposed taxes may not have directly impacted eCommerce brands, the brands would almost certainly have felt the effect one way or another. The main targets of the tax were companies like Google and Amazon, upon which many eCommerce brands rely for sales and advertising. As customers of these tech companies, eCommerce brands would have had tax increases passed onto them in the form of higher listing or advertising prices.
New Rules for Parcel Delivery Make Cross-Border Commerce Easier
New rules regarding cross-border parcel delivery were adopted in March 2018 in order to improve online sales between member states.
Improving price transparency was one of the key aims. The European Parliament states the new rules include the following:
- Both consumers and eCommerce companies will be able to find the best deals on a dedicated website.
- Couriers must provide customers with clear information on prices and conditions.
- Data will be collected by national postal organizations to monitor the market.
Signifyd’s Chris Martinez notes that these changes are particularly empowering for small and medium-sized retailers:
“Smaller retail sellers often lack bargaining power when negotiating shipping rates. Now, EU-based ecommerce retailers of any size can benefit from objective factors that will dictate the market. They no longer have to fear being priced out of growth if they can’t afford to fulfill an increasingly large number of orders.”
The EU is a large and complicated market. That’s why it pays to have an enterprise eCommerce platform as a partner. Entering or operating in Europe doesn’t have to be a headache when you work with Scalefast. Find out more about how we can bring your brand to Europe.