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Until now, VAT rules within the EU meant that goods being imported into the EU from outside the EU (‘3rd Countries’) could avail of an exemption from VAT if the value of the goods being imported, including delivery and insurance, was below €22. It was believed that many suppliers undervalued the supply on the customs declarations – an “abusive practice”.
The “drop-shipping” trading model allowed traders, whether established in the EU or not, to sell goods to EU customers through offshore websites. When the goods were sourced outside the EU and dispatched to the EU customer directly from outside the EU the “distance selling” VAT rules did not apply. The supplier had no responsibility to account for VAT on the supply. VAT, if any, was the responsibility of the customer.
Businesses selling goods into the EU from 3rd Countries using this model were seen as having a competitive advantage over domestic EU suppliers.
In order to remove this competitive advantage, the EU has:
- Introduced the concept of “distance sales from outside the EU” by introducing a new Import
One Stop Shop (IOSS) available for Business to Customer (‘B2C’) sales into the EU where consignment value is no more than €150 (excise goods such as alcohol, tobacco and energy are excluded from the scheme),
- Removed the VAT exemption on parcels below the €22 threshold, and
- Introduced a One Stop Shop (‘OSS’) for B2C sales within the EU.
Why are the changes being introduced?
Simplicity – One of the biggest blockers to cross border e-commerce is the complexity involved with managing VAT within Europe. The EU commission recognised this and therefore decided to introduce the changes to enable simple registration and administration of VAT, without the need for registration in multiple Member States.
Level the playing field – These new measures will remove the competitive advantage that importers into the EU had as they were able to supply goods and services, legally and illegally, free of VAT whilst EU competitors could not.
1 – The Import One Stop Shop
The new IOSS is being introduced to allow businesses with B2C sales into the EU from 3rd countries where the parcel value is no more than €150 to register in just one EU member state. The business will register and submit IOSS returns on a monthly basis in the country in which they register, and the relevant Revenue authority will distribute the VAT due to each Member State accordingly.
The business making the sale (or sometimes a deemed supplier depending on the circumstances) is required to apply the relevant VAT rate applicable in the country in which the customer is based at the point of sale. This may require an update to online checkout systems if applicable. The goods will be VAT exempt at the point of import, and clearance into the EU should be quicker.
The IOSS scheme is optional. However, where a business does not operate the scheme, the customer will be required to pay any VAT due before delivery can be made. The relevant courier/postal services will be required to charge and administer the VAT on any packages imported for B2C sales where the IOSS scheme is not applied. This could result in a number of customers refusing delivery and a number of returns for businesses.
If the relevant business is not established in the EU, an intermediary is required in order to register for the IOSS scheme and this intermediary will be responsible for making the returns to the relevant Revenue authority.
2 – Removal of low value VAT exemption (<€22)
Goods being imported into the EU from 3rd Countries could avail of an exemption from VAT if the value of the goods being imported, including delivery and insurance, was below €22.
As of 1 July 2021, this low value exemption is being removed, meaning that all shipments into the EU will be subject to VAT.
Businesses will be required to decide whether they will:
- a) Register for the IOSS scheme and charge the relevant VAT rate of the country in which their customer is based at checkout, or
- b) Not register for the IOSS system and allow the customer to pay the VAT on delivery of the goods.
3 – The One Stop Shop
The OSS scheme has been introduced to replace the old distance selling model in respect of B2C sales from stock held in one EU location, typically the businesses home country, to non-VAT registered customers in other EU Member States. Similar to the IOSS, it allows a business to register
for OSS in their country of establishment, removing the requirement to register for VAT in several different Member States.
The business will register and submit OSS returns on a quarterly basis in the country in which they register, and the relevant Revenue authority will distribute the VAT due to each Member State accordingly, in addition to the businesses usual domestic VAT return obligations.
The business making the sale is required to apply the relevant VAT rate applicable in the country in which the customer is based at the point of sale.
Businesses with existing foreign VAT registrations, and selling stock from their country of residence, may opt to close these non-resident registrations and use the OSS system instead from 1 July 2021.
NOTE: Sellers holding stock in other EU countries will not benefit from the OSS single return simplification. They must remain VAT registered in each country where they are holding stock. This includes selling using the Amazon FBA program.
The distance selling thresholds are being removed as of 1 July 2021, and a business will be required to either operate the OSS system (optional) or register for VAT in other EU Member States if their total B2C supplies to all other Member States exceeds €10,000 in a year. If they do not exceed €10,000 the business continues to charge their home country VAT on those goods.
Businesses who are non-resident in the EU may also use the OSS simplified filing. They must first register as a ‘non-Union’ taxpayer with the tax authority of any EU member state. They can then file quarterly OSS filings like any EU eCommerce seller. There is a requirement to file a regular domestic VAT return in at least one EU Member State. VAT incurred on imports may be declared in the OSS, too.
If you have any queries regarding the above, or require assistance with registering for IOSS or OSS, please contact a member of our tax team:
John Kilcullen: [email protected]
Carl Donnelly: [email protected]