What are the new EU VAT e-commerce measures?
Any business that has been using the Mini One-Stop-Shop (MOSS) for certain kinds of digital services will already know of the benefits of this kind of simplification.
The new measures extend MOSS by opening it up to more services and also goods including those imported into the EU, thereby potentially simplifying VAT for many more kinds of sales.
It should be noted from the start that neither OSS nor IOSS are mandatory.
As an alternative, businesses can register for and then both account for and pay VAT in each of the EU countries in which they sell to consumers.
This is administratively onerous, of course, and is one of the reasons why OSS and IOSS were created.
It should also be noted that these new VAT measures are limited to online sales to consumers in the EU.
Business to business (B2B) sales from a business in the UK to a business in an EU country continue as they have following the end of the Brexit transition period on 1 January 2021, which is to say, B2B sales of services are generally subject to the reverse charge.
Exports of goods should be zero rated, and are then subject to tax in the destination country through the application of import VAT.
There are several parts to the new VAT rules likely to impact UK online sellers and they can be summarised as follows.
One Stop Shop (OSS)
This is a new online portal for businesses by which non-domestic VAT can be reported and paid for supplies of services and online intra-community distance sales of goods to consumers across the EU.
An intra-community distance sale is one where a VATable supply of goods is made from one EU country to a consumer in a different EU country.
There are two versions of OSS: Union OSS, and non-Union OSS.
- The Union OSS can be used by businesses that are established in the EU and can be used to report VAT on both intra-community distance sales and non-domestic sales of services to EU consumers. The Union OSS can also be used by businesses established outside the EU but only for the purpose of reporting intra-community distance sales of goods.
- The non-Union OSS can be used by businesses that are established outside the EU and can be used to report VAT on sales of services to EU consumers only.
The term ‘not established’ means “a taxable person who has not established [their] business in the territory of the Community and who has no fixed establishment there”.
A fixed establishment is defined as “a sufficient degree of permanence and a suitable structure in terms of human and technical resources to receive and use or to make the respective supplies”.
Notably, a business is not classed as having a fixed establishment if it simply has a VAT number within an EU country.
Administratively, the OSS works in a very similar way to the MOSS scheme.
The VAT rate of the destination country is charged at the point of sale, then reported and paid quarterly via an online portal.
Domestic supplies continue to be reported via the domestic VAT Return.
It should be noted that the sales that can be reported through OSS are subject to destination VAT regardless of whether OSS is used.
OSS is intended to be a tax simplification.
It means businesses can report and pay VAT for all B2C sales that are subject to destination VAT to all EU countries in one fell swoop.
And that’s with a secure communications network in the background distributing the details and payments to the relevant EU countries according to the details provided on the return.
Notably, if you sign up to OSS, you must use it for all supplies made to EU consumers.
For example, a UK online seller couldn’t use it for supplies of services made in France, but report sales of services to Ireland by registering for VAT with Irish Revenue. The online sales to the Irish consumer must be reported via OSS too.
To use the non-Union OSS for services, non-EU businesses have to register with the tax authority within an EU country of their choice.
A €10,000 (£8,600) turnover threshold for ‘TBE services’ (telecommunications, broadcasting and electronic) is carried over from the older Mini One Stop Shop scheme but now also applies to intra-community distance sales but notably no other services.
Import One Stop Shop (IOSS)
IOSS is again optional.
And if it’s not used then a UK seller would continue to zero rate the export for domestic VAT purposes, and the VAT is applied upon import.
However, IOSS offers a way of accounting for VAT to reduce confusion for customers, in that they can see a single accurate cost. It should also help expedite movement of goods across national borders.
Administratively, the scheme is similar to the OSS in that when the seller signs up to use IOSS they can use a single online portal to report and pay VAT – although this is done monthly rather than quarterly.
However, it only applies to online sales that are B2C imports of goods into the EU from outside the EU (from a so-called third country or third territory).
IOSS can be used only for consignments of €150 (£130) and below, or equivalent local currency in the consumer’s country.
If the seller chooses to register for and use IOSS, then VAT of the destination country is again charged and collected by the seller at point of sale.
Businesses may question why they should bother with IOSS. The key focus should be customer satisfaction.
As mentioned, the use of IOSS means goods travel through customs faster because the VAT has already been calculated and accounted for, rather than having to be applied upon import.
It also means the end customer has full visibility of cost at point of sale and won’t incur hidden costs further down the line when goods go through customs.
An important caveat is that IOSS covers consignments, rather than individual items.
So, if a consumer orders several items totalling more than €150 (£130) that are dispatched in the same order, IOSS does not apply. Furthermore, IOSS only covers items not subject to excise duties (e.g. alcohol or tobacco products).
IOSS can be used by both businesses established in EU and elsewhere, but additionally requires businesses not established in the EU to appoint an intermediary to act on their behalf in the country of registration.
If the country where you’re established is outside the EU but has an agreement around mutual assistance for the recovery of VAT with the EU then it’s not necessary to appoint an intermediary.
Currently, the UK does not have such a tax arrangement, so an intermediary will be required for the moment.
(It’s understood that talks are continuing around this point, so this situation may change in the future.)
Removal of distance-selling thresholds
EU place of supply/distance selling thresholds were removed on 1 July 2021.
Previously, this meant VAT only applied to intra-community distance sales if annual turnover was more than €35,000 (£31,000) for sales to most EU countries, or €100,000 (£86,000) per annum for Germany, the Netherlands and Luxembourg.
Removal of the threshold was a mandatory change that affects any business carrying out intra-community distance sales, regardless of whether they use OSS or otherwise.
The removal of the threshold went hand-in-hand with the introduction of OSS and is effectively a powerful incentive to make use of OSS.
It should also be noted that, for services, the place of supply rules remains unchanged.
That is, where you tax a service sale now will be where you tax it after 1 July 2021. But the expansion of MOSS to OSS will mean any B2C service sale subject to destination VAT can now be reported through OSS, not just TBE services.
Abolishing of Low-Value Consignment Relief (LVCR)
Imports of goods less than €22 (£20) are no longer exempted from import VAT.
VAT must be charged on all goods – whether that be via import VAT at point of entry or at point of sale by the seller where the IOSS is used. However, remember, this is only available on B2C consignments worth €150 (£130) or less.
The measure has been implemented to level the playing field between domestic and non-domestic sellers who were seen to be at an unfair advantage when selling goods below €22 (£20).
However, while low-value goods imported into the EU now incur VAT, sellers can use the IOSS to help smooth the administration of the resulting VAT.
Online marketplaces (deemed supplier rules)
The new rules also mean so-called ‘electronic interface’ marketplaces and platforms, such as Amazon and eBay, are the deemed supplier for VAT purposes in certain cases when distance selling to EU consumers.
This affects sellers who use sites such as the aforementioned marketplaces and platforms. But it could also affect smaller businesses such as online antique dealers that retail items on behalf of clients.
Deemed supplier rules remove the need for sellers who use these marketplaces to account for VAT at the point of sale.
Effectively, it’s as if each consumer purchase process means they sell the goods to the online marketplace, who then sell the goods to the consumer and account for VAT while doing so.
A deemed supplier can use the OSS to report VAT in relation to intra-community supplies between EU countries, and also supplies within that same country (e.g. the goods are sent from somebody in Ireland to an Irish consumer) where the seller is not established in the EU.
In other words, use of the OSS means a deemed supplier doesn’t have to report the sale as a domestic supply for VAT purposes. They can also use IOSS to report VAT in relation to B2C imports into the EU with a consignment value below €150 (£130).
Northern Ireland and the OSS/IOSS
Although we’ve referred to the UK through this document, businesses in Northern Ireland may find themselves observing different rules.
This is because, under the Northern Ireland Protocol, they are effectively part of the EU VAT regime in respect of goods but not in respect of services.
This suggests that businesses in Northern Ireland who choose to may have to report all distance sales of goods through the Union OSS, but use the non-union OSS for services.
The UK government has yet to provide guidance on how UK businesses including those in Northern Ireland should approach the OSS and IOSS should they wish to use them. We’ll update this blog with more information as it’s made available.
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Frequently asked questions about the OSS/IOSS
Here’s the answer to questions that are commonly asked about the new EU e-commerce rules.
Who does the OSS/IOSS apply to?
From the perspective of the seller, both OSS and IOSS are open for applications from what the legislation calls ‘taxable persons’.
This means any individual or business that carries out economic activity in the EU. Notably, this can be for-profit or otherwise, so charities or non-profit organisations (NPOs) might also use OSS and IOSS.
A consumer is correspondingly described as a non-taxable person, which is to say, they aren’t subject to account for VAT according to the EU VAT Directive.
My UK business sells goods to consumers in the EU. How does OSS and IOSS affect me?
The answer will depend on how you do business, as follows.
If you carry out intra-community distance sales – that is, goods located in one EU country are being sold to a consumer located in a different EU country – you can register for the Union OSS to account for the VAT on the supply.
Alternatively, you can register for VAT in each country in which you sell to consumers.
If you import goods into the EU from outside the EU on a B2C basis, you can use IOSS (where the consignment value sent to the consumer is €150 (£130) or below).
Note that the consignment value is key here, rather than the value of the individual items that comprise it.
Alternatively, you can continue to operate as you have done previously and allow for import VAT to be applied at customs.
If you’re selling to EU consumers through an online marketplace such as Amazon or eBay then you may no longer need to account for the VAT.
Instead, the VAT will be charged and accounted for by the marketplace itself in its role as a deemed seller. You should speak to your online marketplace about how to proceed if this is the case.
However, these marketplace deemed-seller VAT rules apply only to:
- B2C imports into the EU from a third country of a consignment value below €150 (£130) (that is, transactions that are eligible for the IOSS).
- Intra-community distance sales where the underlying seller is not established in the EU.
- B2C domestic sales within the EU where the underlying seller is not established in the EU.
My UK business sells services to consumers in the EU. How does OSS affect me?
As with selling goods, the answer depends if you have a fixed establishment in an EU country. If so, you should use the Union OSS. If not, use the non-Union OSS.
The non-Union OSS can only be used for online sales that are supplies of services to EU consumers.
My UK business sells both goods and services to consumers in the EU. How does OSS/IOSS affect me?
It’s entirely possible that a business that’s not established in the EU might register for Union OSS, non-Union OSS, and IOSS.
- Union OSS can be used if the UK business makes intra-community distance sales of goods to an EU consumer (that is, the goods are already in free circulation in an EU country).
- Non-Union OSS can be used if the UK business makes sales of services to an EU consumer.
- IOSS can be used if distance sales are made for goods imported into the EU with a consignment value of €150 (£130) or less.
I run a UK business. Which EU country should I use to register for non-union OSS/IOSS?
If you have a fixed establishment in the EU, you should register for Union OSS in that country. If you have multiple establishments, then you can register in the country of your choice in which you have a fixed establishment.
If you have no fixed establishment but intend to use Union OSS for intra-community distance sales, you should register in the country where your goods are dispatched (that is, where they originate in their journey to the consumer).
If you dispatch goods from multiple EU countries then you can choose one of them.
If you’re importing goods into the EU and intend to use IOSS and have no fixed establishment in the EU, you’ll likely need to find an intermediary in any EU country to act on your behalf.
EU countries place various unique requirements on intermediaries, such as the requirements of monetary guarantees. Therefore, you need to look into this matter to find the best outcome for your situation.
If you’re selling services under non-Union OSS, you can choose any EU country in which to register.
Needless to say, language similarities have meant some UK businesses are registering with Ireland’s Revenue.
Is the new OSS/IOSS optional?
You don’t have to sign up for either OSS/IOSS to sell services or goods to EU consumers.
But if you do register, you must use the scheme(s) for all your sales to EU consumers.
In other words, you can’t use OSS for sales to consumers in Germany and France, but not for sales to consumers in Spain.
The relevant scheme must be used whenever non-domestic (unless being used by a ‘deemed supplier’) sales are made to consumers in any EU member state, or not used at all.
What’s the deadline for registering for OSS/IOSS?
Union and non-Union OSS registration and IOSS registration take effect at the start of the next full quarter following application.
In other words, and as just one example, if you applied in early June 2021 then the registration would have taken effect as of 1 July 2021 (which was also the start date of OSS/IOSS).
If you register after 1 July 2021 then, again, the registration officially takes effect at the start of the following quarter – October 2021.
However, if you make a supply before this date after registration then you can inform the tax authority in the EU member state where you register by the tenth day of the month following that first supply.
This supply and subsequent supplies will then fall under the scheme.
How frequently do I have to complete an OSS/IOSS tax return?
IOSS returns are completed monthly, while OSS returns should be completed quarterly. VAT should be paid according to the same schedule.
Can I offset VAT using an OSS/IOSS tax return?
Unlike registering for VAT in a particular jurisdiction, the OSS and IOSS only allow for the payment of output VAT and not the reclaim of input VAT.
Therefore, if input VAT is incurred in a country where the seller does not have a full VAT registration, it will have to be refunded separately.
This will either be via the EU VAT reclaim process or via the 13th Directive process, depending on whether the seller is established in or outside the EU.
Does OSS/IOSS mean I don’t have to complete a VAT Return in my own country?
OSS and IOSS are additional administrative requirements outside of your ordinary VAT accounting, so you should continue to observe the VAT requirements of your own country.
They are effectively simplified EU-wide VAT returns for when you make B2C sales that require you to charge non-domestic EU VAT.
My UK business is already signed up for non-union MOSS. What do I have to do now?
Effectively, nothing has changed compared to how you already handle VAT for MOSS, assuming your business continues to provide services to EU consumers.
However, the EU member state where you registered for non-Union MOSS may contact you asking for further details.
If you register for IOSS, you also need to provide this registration info to the EU member state where you have previously registered for MOSS.
Furthermore, you may now find you have additional sales of services that can be reported through non-union OSS.
You may also want to look at registering for Union OSS if you have a fixed establishment in the EU and make intra-community distance sales and/or IOSS if you export goods to EU consumers.
Actions to take now and final thoughts
If you decide that OSS and/or IOSS are worthwhile for your business, there’s a handful of steps that you should take right now:
- Look into registering for OSS, non-Union OSS and IOSS, depending on your needs. As mentioned above, if you aren’t established in the EU then registering for IOSS involves finding an intermediary to act on your behalf. Each EU country has different rules regarding this, so research may be required.
- You may have to reconfigure your e-commerce software so variable VAT rates can be applied depending on which EU country you’re selling into. This is already possible with popular apps such as Shopify.
- Your accounting software will need to accommodate the same kind of variable VAT rates for each country.
- If you sell through an electronic interface marketplace such as Amazon or eBay, you should consult their documentation about how the deemed seller rules affect what you sell.
As is always the case with VAT, the new OSS/IOSS schemes are simple yet filled with myriad details that can catch out the unwary.
Ultimately, they’re to be welcomed by businesses because of the simplicity they bring to distance selling to EU consumers.