EU VAT: New Rules & Import One Stop Shop (IOSS) Coming 1st July 2021
Starting 1 July 2021, new EU VAT rules will come into force, including the introduction of the new Import One Stop Shop (IOSS). These will regulate online business-to-consumer (B2C) sales of goods and services, with the aim to ensure a fair competition between EU and non-EU business, as well as to simplify VAT compliance for companies.
The new VAT rules have three main effects on UK businesses selling to consumers in EU countries:
- From 1 July 2021, VAT will always be payable at the current rates in the country where consumers are located.
- A set of simplifications will apply, in order to reduce the administrative overhead of VAT registration in multiple countries.
- For businesses selling via a marketplace, the marketplace will become responsible for collecting VAT from EU consumers.
In this blog we summarise the key implications of these new rules for UK businesses selling goods to EU customers online. If you need additional guidance and advice, please do not hesitate to get in touch.
Distance Selling Thresholds
In an effort to guarantee a fair competition between local and extra-EU businesses, the European Union is scrapping individual distance selling thresholds, which will be replaced by a single EU-wide threshold.
Starting 1 July 2021, EU-based businesses will need to charge VAT in the customer’s Member State, unless their turnover from cross-border selling remains below €10,000 within a calendar year.
It must be noted that for extra-EU countries, including the UK, there is no threshold. Therefore, VAT will have to be charged in the EU consumer’s Member State regardless of turnover.
A Unified VAT Portal: The OSS
Businesses selling TBE and digital services to the EU will be familiar with the Mini One Stop Shop (MOSS). This has now expanded into the One Stop Shop (OSS), with a widened scope which now includes all B2C goods and services.
The OSS is an electronic portal allowing companies to account for EU VAT through a single interface, rather than registering in each EU Member State where they sell to consumers. This allows to account for payable VAT for any sales to EU customers.
It must be noted, however, that the OSS does not allow businesses to offset any input VAT. Therefore, for companies that often incur VAT in a EU Member State it may still be advisable to register for VAT in that Member State.
Abolition Of Low Value Consignment & The Import One Stop Shop (IOSS)
Currently, goods with a value up to €22 are exempt from VAT when they are imported into the EU. This exemption has favoured fraudulent practices and unfair competition from extra EU-countries, it will therefore be removed.
Starting 1 July 2021, VAT will be due on all commercial goods being imported into the EU, irrespective of value.
In order to reduce the administrative burden for businesses and custom operators, the EU is launching a new scheme called the Import One Stop Shop (IOSS). The electronic portal is available to EU and non-EU businesses to account for VAT due on their low-value distance sales of imported goods.
Thanks to the IOSS, businesses including online marketplaces will be to report import VAT due on their B2C sales of goods imported into the EU where the consignment value does not exceed €150.
Non-EU businesses must appoint an EU-based intermediary in order to use the IOSS simplification scheme.
How Does The IOSS Work?
Traders who sign up to the IOSS will need to charge VAT at the point of sale, when they accept payments from their EU customers for any orders valued up to €150 within the same parcel. The rates applied to the goods should be based on the customer’s country based on where the goods are being dispatched to.
This will allow qualifying consignments to be imported into the EU free of import VAT and duty, as the VAT will have already been collected at checkout.
IOSS users must then submit a monthly IOSS return and pay the VAT collected from EU consumers on a monthly basis.
The IOSS aims not only to simplify the import of low-value goods, but also to give customers greater visibility on how much they are paying for their order, knowing and paying VAT in advance and avoiding any additional charges.
Selling Via Marketplaces
In order to ensure that no overseas trader sells goods to EU consumers VAT-exempt, from 1 July 2021 online marketplaces will become responsible for charging and collecting VAT on behalf of the sellers in the following scenarios:
- Distance sales of goods imported into the EU with a value up to €150; and/or
- Supply of goods to EU consumers when the goods are already located within the EU and the seller is based outside of the EU. This applies to all goods regardless of value.
In these cases, the VAT liability falls onto the marketplace, rather than the seller.
The seller will be deemed to be making a zero-rated supply to the marketplace, which in turn will be considered as the actual seller of the goods for VAT purposes.
Essentially, what would be a direct supply from the seller to the consumers will be considered as two distinct supplies:
- A first B2B supply from the seller to the marketplace;
- A second B2C supply from the marketplace to the consumer.
6 Steps To Prepare For The Upcoming Changes
- Review your supply chain to identify your VAT liability and upcoming compliance changes.
- Make sure that your system are set up to determine VAT rates based on where your customers are located in the EU.
- Consider whether joining the OSS scheme makes sense for your business or if you should keep your existing VAT registrations.
- Plan ahead if you need to de-register in a Member State to keep your overheads under control.
- Appoint an IOSS intermediary if you are based outside of the EU and planning to opt for this scheme. Take into account any extra costs and/or guarantees involved.
- If you are selling via marketplaces, find out if they will become the deemed supplier of your goods for VAT purposes.