New EU Tax Regulations: What OSS and IOSS Means for Your Store IOSS and OSS Means for Your Store
In 2021, on July 1, new EU tax rules will come in force in the event that the European Union (EU) Value-Added Tax (VAT) eCommerce tax package is in effective. These changes represent a significant revision of the current tax laws that are designed to streamline procedures and administrative requirements for merchants. They will impact virtually every consumer-to-business (B2C) firm involved in cross-border eCommerce trade (often known as "distance sellers") with the EU.
EU merchants who have crossed a new threshold for the EU that is EUR10,000.00 will need to register for registration in all EU countries in which they conduct the taxable sales of business-to-consumer. However, they are able to make this registration through the recently-created One Stop Shop (OSS) system in their own country. It allows online merchants to file an identical VAT return for all the EU and to make a single tax payment, which is then distributed to all regions where they have sales.
We've highlighted some of the most significant changes below. Always, we suggest consulting with a tax professional to make sure your company is following regulations and best practices.
Who will be impacted?
The EU VAT eCommerce package impacts EU merchants that are above the EU-wide threshold of EUR10,000.00 as well as non-EU retailers importing goods to the EU.
Merchants are able to utilize their One Stop Shop (OSS) filing system to submit one VAT return to all countries in the EU as well as separately submit an individual VAT return for each EU country that they ship to.
The tax rate for VAT differs across countries with rates ranging between 17% in Luxembourg to 27 percent within Hungary ( see the full list of rates), so merchants will want to charge the VAT rate applicable to the country of delivery for purchases within the EU. This includes orders shipped through a fulfillment centre in the EU to an address within the EU.
What's changing?
What is it and how does it work:
The present distance selling program allows businesses to avoid registering to register for VAT within a country in which they sell B2C taxable supplies, as in the event that the amount of the supplies do not surpass the threshold for distance selling in a given year. Businesses can apply the local tax rate on those sales as if the sold goods never left the country in which they were sold. If the threshold is reached in a given country, they need to register with VAT authorities, submit VAT returns and charge the local tax rate for the registration country for B2C sales.
We will consider an example of a German firm that offers physical items to consumers in Romania. As long as the German company reaches the annual threshold of Romanian sales of EUR25,305.00 Their sales will be taxable within Germany which is a normal German tax rate of 19 percent.
When the threshold has been crossed and the threshold is set at EUR25,306.00 Once the threshold is crossed, Romanian sales become tax-deductible within Romania which means that they must register there and charge the Romanian tax rate, which is 19%.
How it will work when the changes are in effect:
In July, the distance selling thresholds for particular nations will be eliminated in the EU, and a new threshold of EUR10,000.00 is to be set. After the threshold is reached the business would be required to sign up in the states where they are able to make tax-deductible B2C products, however they can choose to make this registration through the newly-created One Stop Shop system in the country they are in.
This would allow eCommerce merchants to file a single VAT return for the entire EU and make a single tax amount that is distributed across the those countries in which they supply. This scheme will function as an extension of the existing miniature One Stop Shop (MOSS) scheme that is available to digital service suppliers.
Thus, the German physical goods dealer who makes B2C taxable supplies for Romanian, Czech, and Polish private clients, will not have to be registered in those three countries. When they reach the EU-wide threshold, they'll register for OSS in Germany and file a single tax return and then make only one tax payment (instead of three). But, their local German B2C transactions will need to be reported on their local tax return in addition to a local VAT will need to be paid.
What about sellers outside of EU? EU?
The VAT exemption applicable to the importation and use of goods with a value not exceeding EUR22.00 will be revoked. As a result, all goods imported to the EU will be taxed at VAT. Non-EU sellers face a nil registration threshold, meaning they must register the first B2C transaction.
To simplify VAT compliance for non-EU sellers, the Import One Stop Shop (IOSS)will be set up. IOSS allows single returns for businesses that decide to charge VAT at point of sale for consignments less than EUR150.00. If a business decides not to register for the IOSS VAT, it will be paid by the customer upon importing items from within the EU. Consignments valued above EUR150.00 will be charged VAT at the time of arrival.
IOSS could also have an impact on customs clearance with the possibility of processing import products quicker. With some shipping providers when VAT is paid at the time of sale, then the seller could indicate the IOSS number in the Commercial Invoice details to the shipping company to declare customs.
Useful information for Merchants
To learn more about updating your tax settings, go to our tax documentation.
In the event of changing your tax settings, it is highly recommended to consult with an expert in tax to make sure compliance with the law.