New EU Tax Regulations: What OSS and IOSS is for Your Store -
On July 1, 2021 New EU tax rules will come into effect as the European Union (EU) Value-Added Tax (VAT) eCommerce package takes effective. These modifications are an extensive overhaul of current tax rules, designed to simplify procedures and administrative requirements for merchants. They will impact virtually all business-to-consumer (B2C) company that conducts cross-border eCommerce (often referred to as "distance sellers") with the EU.
EU merchants who have crossed a new EU-wide threshold of EUR10,000.00 will need to register in every one of the EU nations where they perform tax-deductible sales to consumers from businesses. They can opt to do so via 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 pay a single tax payment that is distributed throughout the nations where they sell.
We've highlighted some of the key changes below. Always, we suggest seeking out a tax expert to ensure your business is following regulations as well as best practices.
Who are the people who will be affected?
The EU VAT eCommerce scheme affects EU merchants that are above the European-wide limit of EUR10,000.00, and non-EU merchants importing goods to the EU.
Merchants are able to use to use the One Stop Shop (OSS) filing system, which allows them to file one VAT return to all of the EU, or separately file an individual VAT return for each EU destination that they deliver to.
The tax rate for VAT differs from country to country with rates ranging between 17% for Luxembourg up to 27 percent within Hungary ( see the complete rate list) So, retailers are required to use the VAT rate of the buyer's shipping country for purchases within the EU. These include orders that are shipped from a fulfillment center in the EU to a location in the EU.
What's changing?
What is it and how does it work:
The current distance selling scheme permits businesses to not register for VAT purposes within a country in which they sell B2C supplies that are tax deductible, so in the event that the amount of these supplies does not over the distance selling threshold in a given year. Businesses apply their tax rates local to those sales as if the sold goods never left the country in which they were sold. Once the threshold is crossed in the country of origin, they need to register with VAT authorities, submit VAT returns and charge the local tax rate of the jurisdiction of registration B2C sales.
Consider the case of a German business that is selling physical items to consumers in Romania. Until the German business reaches the yearly threshold for Romanian revenues of EUR25,305.00 The sales of the company are tax-deductible in Germany, with a standard German VAT rate of 19 percent.
Once the threshold is crossed at EUR25,306.00, the Romanian sales will be taxed in Romania; they need to register there and charge the Romanian normal VAT rate of 19 1 %.
How it will work after changes take effect:
On July 1, the thresholds for distance selling in certain countries will be abolished, and a new EU-wide threshold of EUR10,000.00 is set to be established. After the threshold is reached, a business will still need to register in countries where they make taxable B2C products, however they can choose to make this registration through the new One Stop Shop system in the country of their choice.
This would allow eCommerce sellers to submit a single VAT return for the entire EU and pay a single tax amount that is distributed across the nations where they sell their products. This program will work as a continuation of the present Mini One Stop Shop (MOSS) scheme that is available to digital service companies.
So the German physical goods seller who makes B2C taxable supplies for Romanian, Czech, and Polish private clients, will not need to register in those three countries. When they reach the threshold for EU-wide registration, they'll register for OSS in Germany make one tax return and pay only one tax payment (instead of three). However, their domestic German B2C sales will still have to be recorded in their tax returns local to them, and local VAT is required to be paid.
What about sellers outside from the EU?
The VAT exemption for the importation of goods of the amount of not more than EUR22.00 will be removed. As a result, all goods imported to the EU are now taxed at VAT. Sellers outside the EU have a zero registration threshold. This means they have to sign up with the first B2C sale.
To simplify VAT compliance for sellers outside the EU, an Import one Stop Shop (IOSS)will be set up. IOSS will permit single tax return filing for merchants who choose to use VAT at the point of sale for consignments less than EUR150.00. If a business decides not to register for the IOSS, VAT will be paid by the buyer upon import of goods in the EU. Any goods valued over EUR150.00 will be charged VAT upon arrival.
IOSS could also have an impact on customs clearance with potential for processing imported products more quickly. With some shipping providers where VAT was charged at the point of sale, sellers can provide the IOSS number in the Commercial Invoice data to the shipping provider for a customs declaration.
Information for merchants that is useful
For additional information about changing your tax settings, check out our guide.
In the event of making changes to your tax settings we strongly recommend contacting an expert in tax to make sure the regulations are met.