As international e-commerce has grown, so too has the complexity of taxing it fairly and effectively. This challenge is particularly acute in the online retail sector, especially in relation to imported low-value goods. Items shipped directly to consumers from abroad often bypass tax collection through de minimis exemptions—thresholds under which goods can enter a country free of duties or taxes. Although these exemptions were originally intended to reduce administrative burdens on customs authorities, they have increasingly been exploited to evade tax and trade rules, particularly amid the surge in low-cost imports from Asia.
In response, governments around the world are re-evaluating their policies. The United States recently announced plans to eliminate customs duty exemptions for low-value shipments from China and Hong Kong. Meanwhile, the European Union and the United Kingdom abolished VAT exemptions for such imports in 2021. As part of its broader customs reform package, the European Union has also proposed removing the €150 customs duty exemption to further tighten controls on cross-border e-commerce.
From trade aid to tax gap: the evolution of de minimis exemptions
The de minimis threshold refers to a valuation level below which imported goods are exempt from customs duties and, in some jurisdictions, VAT. Originally introduced to reduce administrative burdens and facilitate cross-border trade, the exemption enables low-value parcels to pass through customs with minimal documentation and limited inspection. These simplified procedures were conceived in a pre-digital era, when the volume of low-value international shipments was relatively modest.
The World Trade Organization’s Trade Facilitation Agreement, signed in 2013, explicitly encourages the use of de minimis thresholds to streamline customs operations. At the time, the rationale was clear: reducing friction for small consignments benefited consumers, supported small businesses, and allowed customs authorities to focus their resources on high-value or high-risk goods.
However, the e-commerce landscape has evolved dramatically. In the European Union, an estimated 4.6 billion e-commerce parcels crossed borders in 2023—approximately 12 million per day—nearly double the volume recorded just a year earlier. In the United States, the number reached 1.6 billion in 2024, equivalent to roughly 4 million parcels per day. This explosive growth has exposed critical vulnerabilities in the de minimis regime.
One of the system’s key weaknesses is its reliance on self-declared parcel values. Sellers can understate the value of goods or split shipments into multiple parcels to remain under the threshold. In the EU, the European Commission estimates that as many as 65% of e-commerce parcels are deliberately undervalued to stay below the €150 customs duty exemption, avoiding both tariffs and meaningful scrutiny.
Enforcement is now a major concern. Only a small fraction of parcels are subject to physical inspection, and simplified reporting requirements mean that authorities often lack detailed information about the contents of shipments. This blind spot leaves the system open to abuse, allowing counterfeit products, non-compliant goods, and items that fail to meet local safety standards to enter domestic markets unchecked.
While the de minimis thresholds continue to offer real advantages—delivering affordable products to consumers and reducing logistical friction for international sellers—its growing exploitation has triggered a wave of concern. Across both the European Union and the United States, policymakers are now reassessing whether the current system strikes the right balance between trade facilitation and regulatory control.
The US focus: ending duty-free imports from China
Under current US policy, goods valued at $800 or less can enter the country duty-free, regardless of origin—a provision that has enabled foreign sellers, particularly Chinese retailers, to dominate the low-cost segment of the US retail market. On April 2, 2025, President Donald Trump signed an executive order to eliminate the de minimis exemption for imports from China and Hong Kong, effective May 2, 2025. This policy shift is part of a broader strategy focused on trade enforcement, border security, and protecting domestic manufacturing. The administration has cited a range of concerns, including the proliferation of counterfeit goods, the trafficking of illicit narcotics, and the competitive disadvantage faced by American businesses due to artificially low prices on imported goods.
Unlike the European Union and the United Kingdom, the United States does not have a federal VAT or a nationwide sales tax system that applies uniformly to imported goods. As a result, US authorities have focused their reform efforts on customs duties—the primary tool available at the federal level to regulate the cost and volume of imported retail goods.
The EU approach: VAT and customs reforms
Prior to July 1, 2021, the European Union applied a VAT exemption known as Low Value Consignment Relief (LVCR), which allowed goods imported from non-EU countries with a value of €22 or less to enter the bloc without VAT. The policy was originally intended to streamline the processing of low-value shipments through customs and reduce administrative burdens for both businesses and authorities. However, over time, the exemption became widely exploited.
Recognizing these distortions, the EU abolished the LVCR on July 1, 2021. From that date onward, all imported goods—regardless of their value—became subject to VAT. To simplify compliance, the EU introduced the Import One Stop Shop (IOSS), a voluntary scheme that allows online sellers to collect VAT at the point of sale for goods valued at €150 or less and remit it through a single registration in one member state. If the IOSS is not used, VAT must be paid upon importation before the goods are released into free circulation. The EU also made online marketplaces responsible for collecting and remitting VAT on imports valued under €150 when sold to EU consumers. Marketplaces may use the IOSS to fulfill these compliance obligations.
The IOSS has been widely adopted and continues to grow in scale. By the end of 2023, more than 12,000 sellers were registered, up from 10,200 the year prior—a 19% increase. In the same year, €3.9 billion in VAT was declared through the IOSS, nearly quadrupling the total declared in the program’s first six months. In 2024, IOSS-registered sellers accounted for 92% of all imports of goods valued at €150 or less.
Despite its success, the system has exposed new vulnerabilities. A 2025 report from the European Court of Auditors revealed widespread abuse of the IOSS, including the misuse of IOSS identification numbers by unregistered or fraudulent traders, systematic undervaluation of goods to fall below the €150 threshold, and the artificial splitting of consignments to avoid tax liabilities. One of the system’s key weaknesses lies in the limited identity verification for IOSS registrations. Customs authorities can confirm the validity of an IOSS number but not whether it belongs to the entity declaring the shipment—opening the door to impersonation and fraudulent use of legitimate identifiers.
To address some of these gaps, the European Commission proposed a sweeping customs reform package in May 2023. The plan includes establishing a unified online environment—the EU Customs Data Hub—to enable real-time verification of import compliance. It also proposes eliminating the €150 customs duty exemption for low-value goods, introducing a simplified tariff regime for such consignments, and expanding the IOSS to cover all goods, regardless of their value. Additionally, the reforms would make online marketplaces the deemed importer, holding them responsible for collecting both VAT and customs duties at the point of sale. Although initially slated for implementation by 2028, increasing pressure from policymakers and industry stakeholders may accelerate the timeline, underscoring the growing urgency to close remaining loopholes in the taxation of cross-border e-commerce.
The UK’s post-Brexit model: marketplace liability and VAT registration
In the United Kingdom, a customs duty exemption continues to apply to imported goods valued below £135. However, on January 1, 2021—following the end of the Brexit transition period—the United Kingdom abolished the £15 VAT exemption for low-value imported goods. Rather than adopting a system similar to the EU’s IOSS, the United Kingdom implemented its own VAT regime for cross-border e-commerce. Under the new rules, online marketplaces are responsible for collecting VAT at the point of sale on goods valued at £135 or less when sold by overseas sellers. Non-UK sellers operating independently of marketplaces must register for UK VAT and collect the tax themselves when selling directly to UK consumers within that threshold.
The reform yielded some immediate fiscal benefits. According to the National Audit Office, VAT revenues from online retail increased by £1.5 billion annually following the shift in tax liability to online marketplaces. However, behind these headline gains lie significant structural weaknesses that continue to undermine enforcement and facilitate tax evasion.
One major vulnerability stems from the ease with which sellers can register for VAT. In most cases, HMRC does not verify whether a business is genuinely UK-established. Identity and address checks are minimal, allowing foreign sellers to falsely present themselves as UK-established in order to bypass marketplace VAT collection requirements.
This issue is compounded by the UK’s decision to stop assessing VAT at the border for goods valued under £135. If an overseas seller fails to register for VAT, there is no routine customs process in place to detect or prevent non-compliance. Although registration is mandatory by law, HMRC faces significant limitations in enforcing these obligations against foreign entities operating beyond UK jurisdiction.
The system is also routinely exploited through practices such as undervaluing goods or splitting shipments into multiple low-value consignments to remain under the threshold. In some cases, entire shipping containers arrive in the UK filled with thousands of packages, each addressed to fictitious recipients in order to evade inspection and avoid detection.
As of April 2025, the UK government has not introduced any formal proposals to abolish the £135 customs duty exemption or to amend the VAT rules for online retail, despite mounting concerns over their susceptibility to abuse. However, pressure is growing. Retail associations, tax professionals, and domestic businesses are increasingly calling for reform, arguing that the current framework places UK-based retailers at a competitive disadvantage and leaves the VAT system exposed to tax evasion.
Three paths to a common goal
The approaches adopted by the United States, the European Union, and the United Kingdom to regulate low-value imports reflect their distinct legal frameworks, tax systems, and enforcement capacities. While their shared objective is to ensure compliance with tax and trade rules for cross-border e-commerce, the scope and execution of their reforms differ significantly.
In the absence of a federal VAT, the United States has focused solely on customs duties as its primary instrument for regulating low-value imports. Its recent decision to eliminate the de minimis exemption for shipments from China and Hong Kong illustrates a targeted, enforcement-led approach aimed at specific trade partners.
The United Kingdom, by contrast, has focused its efforts on a VAT reform. Following Brexit, it abolished its VAT exemption for low-value imports and placed the obligation to collect VAT on online marketplaces and overseas sellers. However, the UK system remains largely dependent on voluntary compliance. Border checks for low-value goods have been discontinued, and identity verification during VAT registration is minimal. These weaknesses have created opportunities for abuse by foreign sellers who exploit gaps in enforcement infrastructure and regulatory oversight.
The European Union has taken the most comprehensive and multi-layered approach, starting with the removal of its VAT exemption for low-value goods and the implementation of the IOSS in 2021. Though the system is not without flaws, it benefits from stronger enforcement tools. VAT is either collected at the point of sale or upon entry, and customs authorities have multiple layers of oversight to detect and respond to fraud. The EU’s upcoming customs reform seeks to further tighten controls and close remaining loopholes.
As global e-commerce continues to reshape consumer habits, it is also forcing governments to rethink how they tax and monitor cross-border trade. Each jurisdiction is weighing its own trade-offs between administrative simplicity, fiscal integrity, and enforcement capacity. Yet one insight is clear: robust enforcement is just as critical as well-crafted legislation. Without effective mechanisms to ensure compliance, tax systems will remain vulnerable to abuse.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.
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