The rationale for these changes is to overcome barriers to cross-border online sales and to address the challenges posed by VAT schemes for distance selling of goods and the introduction of low-value shipments.
Modernising cross-border e-commerce
Businesses will no longer need to register for VAT in every EU country where they make sales. They may choose to subscribe subscribe to the One-Stop Shop OSS. At the same time, the EU is also abolishing the 35K / 100K VAT limit for distance selling. This means that businesses Vat exeptionon low value imports up to Euros 22 (De Minimis threshold).
As an exception to the general rule, EU businesses established in an EU Member State with annual cross-border sales of less than € 10,000.00 (B2C sales of goods and services) may charge domestic VAT and declare sales to refund their domestic VAT.
For example
An Italian e-commerce company sells clothes and shoes to customers in 3 other EU countries where the value of sales exceeds € 10,000.00.
Until 1st July,2021
The Italian company is obliged to register and reimburse VAT separately in each of the 3 EU countries as well as to charge customers their country's VAT if sales in that country are above the set annual turnover limit.
From 1st July,2021
The Italian company can choose to close its VAT registrations in the other 3 EU countries it sells and make an OSS registration in the EU country where it is registered. Will make a quarterly single VAT refund. It must charge its customers VAT in the country of destination, regardless of the total amount of sales in that country.
Who is affected? Everyone is affected by the e-commerce supply chain, from online retailers and e-commerce platforms both inside and outside the EU, transport and couriers, customs and tax administrations, until the good
What are the transactions covered by the new changes?
- Distance sales of goods within the EU carried out by suppliers or deemed suppliers
- Domestic sales of goods from deemed suppliers
- Supplies of services by EU and non EU sellers to consumers in the EU
- Distance sales of goods imported from third territories or third countries and carried out by suppliers and deemed supplies except for goods subject to excise duty
In simple words
Going out on 1st July
- Vat exemption on low value imports up to Euros 22 (De minimis threshold)
- Varying VAT exemption thresholds for B2C distance selling within the EU (currently Euros 35K to 100K depending on EU Member state)
Coming on from 1st July
- All low value imports sold to EU consumers (B2C) are subject to VAT-regardless of value!
- Applies to all B2C goods and services sold at a distance-imports and intra-EU
- Single EU-wide VAT exemption threshold of Euros 10K- applies to EU-based businesses only
- For non-EU based businesses there will be no more VAT exemption thresholds for B2C distance selling
- Non-EU based businesses have to charge VAT at checkout from the outset-subject to the VAT rate on where the delivery of goods is.
- Online Marketplaces (OMPS) are "deemed" the seller and liable for VAT payments -exceptions apply
- Each Member state will have their own One- Stop Shop portal schemes (Union, Non-Union, & Import)
- Online sellers and Marketplaces have the option to register for VAT in ONE Member state and declare and pay VAT in ONE electronic periodic return via the relevant OSS portal scheme/s
What is not covered under the new EU VAT rules?
B2B transactions
Cross border B2B transactions will be subject to the same rules that have been in place since Brexit
Rules depend on:
- Where the goods are coming from
- Who the importer of record (IOR) is
- What country they are imported into
Goods subject to excise rules
Fore example: Tobacco, Alcohol
B2C goods sold at a distance > Euro 10K
- Only applies to EU-based businesses with 1 Member state of establishment
- If the total value of B2C goods sold cross-border inter-EUis Euro 10K or more, the seller is liable for VAT in the Member state where the buyer is located
- Option to register for a new OSS to make VATA declaration and payment faster and easier
When does the OMP become "deemed supplier" for VAT?;
The OMP becomes "deemed supplier" for VAT purposes when it facilitates the delivery of supplies:
1) Any B2C sales of goods imported into the EU where the value of the consignments does not exceed EUR150, and/or
2) B2C supplies of goods within the EU, by a non-EU seller (both domestic supplies and intra-Community distance sales of goods are covered)
What is the One-Stop Shop (OSS)?
- Electronic portal that simplifies VAT compliance for B2C sales of low value goods sold at a distance to EU consumers (B2C)
- For both EU-based and Non-EU based businesses and Marketplaces
- Enables single VAT registration and single periodic VAT submission to fulfill VAT obligations across all 27 EU Member countries
- Usage is optional, not mandatory and is available in every Member country
- 3 types of OSS schemes
What are the 3 types of OSS scheme?
| SCHEME | What it covers |
| Union OSS | covers all types of business to customer (B2C),
supplies of services as well as intra-EU distance sales of goods, and certain domestic supplies facilitated by electronic interfaces Periodic VAT declaration |
| Non-Union OSS | supplies of all types of cross-border services provided by taxable persons not established in the EU to final consumers in the EU
Periodic VAT declaration |
| OSS for Imports (IOSS) | covers distance sales of goods imported from third territories or third countries to customers in the EU
for consignments with intrinsic value <=150Euros Monthly VAT declaration |
Which OSS scheme/s must you use?
| Your business | Relevant OSS schemes |
| Non EU-based business importing low value consignments <=150 Euros | IOSS
Register once in one Member country of your choice Must have EU-based intermediary |
| Non-EU based with stock in EU | Union OSS
Register for Union OSS in the Member county where stock is held |
| EU-based | Union OSS and IOSS
Register for both in One Member country of establishment |
What's required for IOSS?
Display VAT to be charged on goods on your website
Apply and collect VAT at online checkout subject to where the goods are being delivered
Provide IOSS Identification number to the person declaring the goods at the EU border and all other mandatory data required for Custom Clearance
Show the price paid by the buyer in EUROS on the commercial invoice
Ensure consignments do not exceed Euros 150 threshold
Submit an electronic monthly VAT return
Make a monthly VAT payment of the VATA declared to the Member country where you are identified for IOSS
Keep records of IOSS and/or facilitated sales for 10 years
How does the IOSS scheme work for non-EU based businesses?
How does IOSS help you save time , money and give a better customer experience?
Time
- 95% reduction in red tape
- Register for VAT in one Member country -not all 27
- Single consolidated monthly VAT return - not multiple
- IOSS Identification number makes Customs clearance faster, smoother, less risk of parcel delays
Money
- Cash-flow VAT payments to EU Tax Authorities are monthly
- Avoid paying courier fees for VAT clearance services
- Pay just one authority in one currency
Customer Experience Benefits
- Transparency of VAT transactions at the point of purchase
- Confidence that VAT is charged at the rate applicable to the goods delivered to their destination
- Ease of payment - VAT is paid directly at the point of purchase
- They are not faced with unpleasant surprises for VAT claim before accepting the goods
VAT checklist
- Update your website to identify and apply the correct VAT for EU destinations at point of sale
- Decide in which EU Member country to register for IOSS
- Register via IOSS portal and obtain unique IOSS VAT Identification number
- Appoint EU based intermediary to handle tax compliance at your behalf if Non-Eu based
- Collect the VAT amount when selling online
- For Marketplace sales, check that you are covered under the Marketplace regime
- Show the VAT collected on the Commercial Invoice
- Provide the customs declarant with your IOSS VAT Identification number (or the Marketplace for OMP sales)
- File monthly VAT declaration before the end of Month+1
- Keep records of all eligible IOSS distance sales of imported goods for audit by EU tax authorities. The information to be retained is that of the VAT Implementing Regulation
Delivery checklist
- Ensure your E-commerce platforms are able to calculate VAT at checkout and pass VAT data along with the order data for shipping and dispatch
- Check that the intrinsic value of the consignment is <=150Euros
- Ensure your dispatch platform s can support IOSS and generate the required data/documentation for smooth custom clearance
It is not recommended to include IOSS identification number on physical documentation to avoid risk of misuse. Get clarity from your carriers on how to transmit your IOSS VAT Identification number to them
Don't forget! In addition to IOSS-specific data you must provide all other mandatory data for custom clearance of EU imports: HS code, country of origin
How does it impact delivery if you don't register for IOSS?
- Reduced choice of delivery services for NON-IOSS shipments offered by carriers
- Higher delivery costs due to additional handling fees
- Parcel delays due to longer customs clearance processes and border controls