EU customs and VAT reforms: Turning point for businesses selling into Europe
As the bloc moves towards a more digital and controlled trade environment, pet companies must reassess their export strategies. Is direct shipping still the right model?
Europe’s new trade regulations will reshape how pet businesses operate across the region. As customs duties, handling fees and VAT rules change, companies must reconfigure their market entry strategies to secure long-term growth.
Significant developments
At the center of this transformation are two major EU regulatory initiatives: the EU Customs Reform and the EU VAT in the Digital Age (ViDA) package. Together, these revisions will introduce significant changes to how pet businesses sell, distribute and manage compliance across Europe, with measures extending beyond 2030.
For pet firms, the reforms will impact the cost base and margins for selling into Europe and the way consumers experience purchasing pet products online, as well as more broadly affecting market entry and operational considerations.
The immediate consequences follow from the EU Customs Reform, which abolished the €150 ($173) customs duty exemption for the import of small parcels into the EU on 1 July 2026.
As a temporary measure (pending the rollout of the EU’s data-driven customs framework), the EU introduced a new fixed customs duty of €3 ($3.50) per item (i.e. per tariff line) on the business to consumer (B2C) sale of small parcels imported into the EU as of the same date.
This is a real cost impact for any pet companies currently selling into Europe through cross-border e-commerce. It is also a timely reminder to step back and ask a more fundamental question: what is the right model for a pet business that is selling products into the EU over the next two to five years?
The immediate changes (and costs)
The €150 customs duty exemption for B2C distance sales of small parcels was originally introduced as an administrative simplification, but the continued growth of international e-commerce has put high pressure on the EU’s customs and VAT systems and has distorted the level playing field between e-commerce and traditional retail.
Now, each small parcel up to €150 imported into the EU through B2C distance sales will attract a fixed customs duty of €3. For example, a parcel with five identical products counts as one item, whereas a parcel containing two different products counts as two items (i.e. each distinct product type within a small parcel will attract a fixed customs duty of €3).
For pet businesses shipping mixed assortments of products, the distinction matters, and the costs can add up quickly. A brand shipping 50,000 items a year into the EU may face around €150,000 ($173,083) exposure, on top of which even another €30,000 ($34,616) in VAT may be due (assuming a 20% VAT rate). These are real operating expense issues for businesses.
It is worth noting that for certain pet product categories – particularly accessories attracting low or zero customs duty rates – the new €3 fixed customs duty may represent a higher cost than the ad valorem duty it replaces, making it essential for pet companies to model their exposure on a product-by-product basis rather than assuming the fixed customs duty rate is universally cheaper. Furthermore, pet businesses need to be aware that applying preferential trade agreements may not always be an option to mitigate the €3 flat customs duty.
Additionally, a new EU-wide customs handling fee is expected to be introduced in autumn 2026. The exact amount and application date are still to be confirmed, but €2 ($2.30) per parcel from November 2026 is currently anticipated. Several EU member states are not waiting for the EU-wide measure and have introduced or are set to introduce their own national handling fees in the interim.
How will this impact consumer experience?
For pet businesses, how the new EU customs duty and handling fee will be managed is a very relevant consumer experience decision. Absorbing the duty protects the consumer, but impacts margins, while passing the duty on risks a price increase or an unwelcome surprise at delivery for the end customer (even more if increased with VAT that then compounds the cost).
How the EU-wide customs handling fee will interact with the customer journey remains to be seen pending its introduction.
What about ViDA?
Running in parallel with the EU Customs Reform are the EU’s ViDA changes. This is the most significant overhaul of the EU VAT system since the introduction of the single market in 1993. Where the customs reforms are largely about the cost of getting goods into the EU, ViDA is about how VAT is managed, invoiced and reported once those goods have arrived in the EU.
ViDA has three pillars. Two are directly relevant to pet brands. First, mandatory e-invoicing and digital reporting for cross-border B2B transactions in the EU are introduced as of 1 July 2030, with several EU member states rolling out domestic requirements earlier.
Second, a new Single VAT Registration concept rolling out from 2027 allows businesses to manage EU VAT through a single registration in one EU member state, potentially reducing VAT compliance costs significantly.
The third pillar covers expanded deemed supplier rules for short-term accommodation and passenger transport platforms, and so is not expected to impact the pet sector.
Rethinking market entry and operations
For pet businesses currently shipping individual parcels directly to EU consumers from outside the bloc, the duty and handling fees are based on a per item/parcel basis.
Going forward an alternative may be to shift from direct parcel shipping to building local unsold stock in the EU in order to fulfill orders from there. Pet businesses should therefore consider their corporate structure for the EU and whether other models such as local fulfillment partners and/or local distributors may be more appropriate or economically viable.
Market entry can, for example, take place through a third-party logistics provider and a fiscal representative as a first step. Longer term it can be achieved through incorporating a local EU entity, provided that is the best step commercially.
The right business model depends on sales volumes, whether third-party platforms or distributors are used, and the extent to which a pet business’s local VAT and customs infrastructure needs to support growth ambitions in the EU.
While designing a market entry and operational model, the relevant ViDA questions should also be answered. For example, which e-invoicing requirements apply to transactions with platforms and distributors, as well as in which country or countries VAT registrations need to be live.
What pet businesses need to do now
The immediate priorities are to quantify customs duty and handling fee exposure and assess whether a current market entry structure needs to be overhauled, revised or updated.
On the ViDA side, the timeline for compliance is longer, but current and future e-invoicing obligations and Single VAT Registration simplifications all feed into market entry and operational decisions that need to be made now.
In practice, designing the customs and VAT requirements and aligning these with the requisite legal frameworks and ERP systems is where businesses may require input from specialist legal counsel.
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