EU VAT IOSS and OSS – From the 1st July 2021, important changes to the EU VAT rules will be introduced. The changes will affect all UK e-commerce retailers with their international shipping when they ship from the UK to the EU. It is vital that you, as an UK e-commerce merchant, are aware of all the implications around these new rules and that you are prepared for the changes.
This article will talk you through all you need to know about the new EU VAT rules with step-by-step guidance on how to prepare. We’ll explain why it’s important for you as an online retailer, what you need to consider for both your customers and your business, as well as walk you through the Import One-Stop Shop (IOSS) and the One-Stop Shop (OSS).
- What are the changes to the EU VAT’s rules?
- What is the EU VAT’s Import One-Stop Shop (IOSS)?
- What is the EU VAT’s One-Stop Shop (OSS)?
From 1st July 2021 the €22 valued added tax (VAT) exemption on goods that are imported into the EU will be removed. From this date, all goods that you import will be subject to VAT, no matter what their value. This change will be applicable to UK e-commerce retailers shipping to Europe due to Brexit.
The EU’s stance is that if the sale of goods to buyers in the EU is facilitated through an electronic interface, the electronic interface is considered to have made the sale. Therefore you as the merchant are liable for the payment of VAT.
In operational terms, the changes to the EU VAT rules are being introduced to help streamline and speed up the processes for declaring and paying VAT on distance sales.
The changes only apply to goods that have a value of €150 and under. So if you’re an e-commerce business who exports low value goods to the EU you need to be prepared.
If you’re an e-commerce merchant that is based in the UK and the place of supply of your service or goods is in an EU country, you do not pay UK VAT. For some supplies of goods you may need to register and account for VAT in the EU country that the customers you are selling to are situated.. If you’re unsure how to treat and process the services or goods that you’re supplying, don’t worry. VAT can be confusing, even to more experienced retailers. Head over to the website for tax authority in the country you’re sending to and they should have all the information you need.
As mentioned above, VAT can be confusing. The Import One-Stop Shop can help you understand and honour your obligations and get your processes in order.
The Import One-Stop Shop is a portal for businesses to ensure they comply with their VAT obligations for distance sales and imported goods. The Import One-Stop Shop portal is available to use from July 1st 2021 and is free to use for all customers.
If you are a UK business selling products to EU customers that are below €150 in value, this service is for you. If the value of the goods you are exporting to the EU exceeds €150 you should adhere to the normal import rules on VAT.
The IOSS covers the following sales of distance goods:
- Goods that are transported or dispatched from outside of the EU at the time they are sold.
- Goods that are transported or dispatched in consignments and under €150 in value. This rule applies to consignments with multiple orders.
- Goods that are not subject to excise duties such as alcohol or tobacco products.
You can also use the IOSS service if you are a UK business who supplies digital services such as e-books, online games, cloud-based software and music streaming services to consumers in EU member states. You can also use the portal if your business is based outside the UK and EU and supplies UK or EU customers.
If your business is based in the UK and makes cross-border supplies where the place of supply is an EU member state, there is no registration threshold. VAT is charged at the rate applied by your customer’s country. If your business is based outside the UK or EU and makes supplies of digital services to consumers in either the UK or EU, the place of supply will be where your customer is located.
Take your time getting to grips with your VAT obligations. There are plenty of great resources available, including government websites. Don’t forget that alongside the VAT obligations we mention in this guide, you may be subject to a number of other VAT rules. Check the UK Government’s webpage for more details.
If you’re an ambitious e-commerce retailer that wants to save time, streamline processes and ensure compliance the IOSS is a great service to sign up to. Here are some of the key benefits.
- Using the IOSS streamlines the entire VAT process for UK merchants exporting to the EU. It makes it easier for you to collect, declare, and pay VAT when you’re making distance sales of imported goods that are under €150 in value.
- The buyer of your goods is only charged at the time of purchase. This means they won’t get any unexpected fees when their goods are delivered helping you provide great customer service and build loyalty.
Important note – If you’re not registered to the Import One-Stop Shop, your customer will have to pay the VAT. In addition, a customs clearance fee is usually charged by the transporter when the goods are imported in the EU. Whatever process you decide on, make sure you communicate the process and responsibilities to your customer before they purchase. No one likes surprises, especially those that require unexpected payments!
You can register with the IOSS portal from April 1st 2021. The IOSS portal will then be available to process VAT on the sale of your goods from July 1st 2021. Before July 1st you should carry on following the current VAT process. Registration can be done on the portal of any EU Member State and covers you for all distance sales of imported goods to your EU customers.
What is the process once you have registered with the IOSS?
Once your business is registered, the process for using the IOSS is simple and straightforward. You should follow the following process for each sale to the EU below the value of €150.
- Complete the required information for customs clearance in EU Member States. This includes the IOSS VAT identification number for the person or business who is declaring the goods at the border to the EU. So, in this case, as the e-commerce retailer, this should be your IOSS VAT identification number.
- Enter the amount of VAT that will be paid by your customer in the EU that is receiving the goods. You must display the amount by the time the order process is finalised.
- Make sure the correct amount of VAT is collected from your customer in the EU.
- As far as is possible, you should include accurate information about the value of the goods entering the EU Member State. Remembering that this process is only for goods with a value of €150 and under.
- You must complete and submit an accurate VAT invoice every month including all sales you’ve made from the UK to the EU that qualify for the IOSS.
- You need to make a monthly VAT payment to the EU Member State where you are registered with the IOSS.
- As with all your financial processes, keep an accurate record of all sales that qualify for the IOSS process. This needs to cover the last ten years.
Are there any exceptions for paying EU VAT in Member States?
There are a number of exceptions for e-commerce merchants that are selling to customers based in EU Member States. They are as follows:
- When you’re selling multiple goods to the same buyer and the value exceeds €150. In this circumstance your goods will be taxed at the normal rates in that EU Member State at the point where they are imported.
- If the distance sale of your goods is processed and facilitated by an electronic interface. Examples of this include online marketplaces and platforms such as Shopify, WooCommerce and PrestaShop.
The One-Stop Shop (OSS) is part of an overhaul of the EU VAT process. The OSS had originally been scheduled for launch on January 1st 2021 but was delayed. The OSS regime builds on the successful launch of the single VAT return for B2C digital services, the MOSS return that was launched in 2015.
From July 1st 2021 e-commerce businesses based in the EU will be able to use the OSS to complete and submit a new OSS filing. This will be processed alongside their usual domestic VAT return and should include all sales across EU Member States. The seller then remits the VAT that is payable to their home VAT authority. This tax authority will subsequently forward the taxes to the appropriate countries. As a retailer that is not based in the EU you can still apply to use the OSS scheme. When you register you will need to nominate any single EU state to file your VAT in.
The OSS includes three schemes; the non-Union scheme, the Union scheme and the import scheme. The first 2 schemes listed are extended versions of established processes, the import scheme has been recently introduced. All 3 schemes enable taxes to be declared and paid in either EU Member States where people or businesses are based or a Member State where the businesses’ web-portal is registered. All schemes are optional and do not replace the VAT return that a merchant is required to complete in their EU Member State.
Which OSS scheme do UK businesses need to use?
As UK e-commerce businesses will be all too aware, the UK left the EU VAT regime on 31 December 2020. So, as a UK-based company you will need to register in one of the EU states to file a ‘non-Union’ OSS return.
Can I, as a UK merchant, use the OSS regime?
In a nutshell, yes you can. To do so you must register as a ‘non-Union’ taxpayer with the tax authority of any EU member state. You can then file quarterly OSS filings using the same process as any EU e-commerce merchant. You will need to file a regular domestic VAT return in at least one EU Member State. You can also declare VAT incurred on imports using the OSS regime.
What are the benefits of using the One-Stop Shop?
- Like the Import One-Stop Shop, the OSS should save merchants time on VAT and export processes.
- Businesses using the OSS will benefit from a substantial reduction in VAT compliance costs when exporting outside the EU.
- The EU hopes that businesses will be more able to compete on equal footing with non-EU businesses that are not charging VAT.
There are a few key differences in goods that are covered by the One-Stop Shop. The differences relate to whether the vendor is using the Union One-Stop Shop or non-Union One-Stop Shop. As a UK-based retailer you will only be able to use the non-Union OSS.
What type of goods does the Union One-Stop Shop cover?
The Union OSS covers all supplies of B2C services by EU-established companies sending to a different EU Member State. It also covers the distanced sales of goods in the EU that are made by suppliers both established and not established in the EU.
What type of goods does the non-Union One-Stop Shop not cover?
As a UK-based retailer the non-Union One-Stop Shop is the service you need. It is exclusively for online sellers that aren’t established in the EU or for B2C supplies of services that take place in the EU made by non-EU retailers.
A variety of goods are covered by the non-Union OSS. At first glance it appears that the services covered by the non-Union OSS wouldn’t include typical goods supplied by e-commerce retailers, but it is worth checking on the EU webpages to see if your goods are eligible. Some common examples include accommodation services, supply of catering services for consumption onboard aircraft and other transportation services.
If you want to register with the non-Union OSS you can do so on the website of any EU Member State. Registration opened on April 1st 2021 and transactions can be made on or after July 1st 2021. You only need to register once to cover you for all EU Member States. This single registration also covers you for eligible supplies processed via electronic interfaces.
What is the process once you have registered with the OSS?
After you have successfully registered with the OSS you need to ensure you adhere to the following processes.
- For each transaction, apply the VAT rate of the Member State you’re sending goods to or where you are supplying services.
- Collect VAT from the customer for all intra-EU distance sales of goods or supply of services.
- Complete and submit an electronic quarterly tax return via the OSS portal of the EU Member State you registered with.
- Make a quarterly VAT payment which you declare in the EU Member State you registered with.
- Keep an accurate record of all the sales you have made for the last ten years that were eligible to be processed through the OSS.
We hope this guide to the changes to the EU VAT rules and to using the Import One-Stop Shop has been useful and informative. As with all VAT processes it can seem a little intimidating at first. But rest assured, once you have used the portal on a handful of occasions and devoted some time to making sure you understand your VAT obligations you will be much more confident with the processes. Before long it will become just another straightforward admin process in your calendar. Remember, if you need any guidance or support around Brexit, COVID-19, which e-commerce platform to choose and much more, head to our free library of e-commerce and shipping resources.
Need help shipping internationally, or even to a particular country?
Check out the following guides for more specific advice on shipping to a particular nation: