A New EU Tax Regulations: What OSS and IOSS is for Your Store -
The 1st of July, 2021 the new EU tax regulations will come in force in the event that the European Union (EU) Value-Added Tax (VAT) eCommerce program is in effects. These changes represent a significant overhaul of current tax rules which are intended to make it easier for processes and administration for merchants. The changes will affect virtually every business-to-consumer (B2C) business involved in cross-border eCommerce trade (often known as "distance sellers") in the EU.
EU retailers who cross the new threshold for the EU that is EUR10,000.00 are required to be registered in all EU nations where they perform taxable business-to-consumer sales. They can opt to do so via the recently-created One Stop Shop (OSS) program in their home country. This allows eCommerce merchants to submit an identical VAT return for all of EU and to make a single tax payment distributed across regions where they have sales.
Here are a few most significant changes below. Always, we suggest consulting with a tax professional in order to ensure that 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 retailers that exceed an EU-wide threshold of EUR10,000.00 in addition to non-EU businesses import goods into the EU.
Merchants have the option to use the One Stop Shop (OSS) processing system for submitting a single VAT return for all of the EU as well as separately submit tax returns for each EU country that they ship to.
The VAT rate differs between countries, ranging between 17% for Luxembourg to 27% within Hungary ( see the complete listing of rates) So, retailers will want to charge tax at the rate of VAT in the country of delivery when placing orders in the EU. It is applicable to orders delivered from a fulfillment center in the EU to a location in the EU.
What's changing?
How it works now:
The present distance selling program allows businesses to avoid registering to register for VAT in a country where they sell B2C tax-deductible supplies as provided that the value of the supplies do not surpass the threshold for distance selling for a specific year. Companies apply their tax rates local to these sales, as if sold goods never left their country. If the threshold is reached in the country of origin, they need to register, file VAT returns, and charge the local tax rate from the country of registration for B2C sales.
Let's consider the case of a German company that sells physical goods to private customers in Romania. When the German company reaches the annual threshold of Romanian sales of EUR25,305.00 The sales of the company are tax-deductible to Germany which is a normal German tax rate of 19 percent.
When the threshold has been crossed, starting from EUR25,306.00 Once the threshold is crossed, Romanian sales become tax-deductible in Romania; they need to sign up and be charged the Romanian standard VAT rate of 19 percent.
What will it do after changes take effect:
In July, the distance selling thresholds for particular countries will be abolished, and a new EU-wide threshold of EUR10,000.00 is set to be established. When it's reached the business would need to register in countries where they make taxable B2C goods, but they can choose to register using the recently-launched One Stop Shop system in the country of their choice.
This would allow eCommerce merchants to file one VAT return across the entire EU and remit just one tax refund to the various those countries in which they supply. It is akin to the scheme will function as an extension of the existing Mini one Stop Shop (MOSS) scheme, available for digital service providers.
Therefore, the German physical goods vendor that makes B2C supply that is tax-deductible towards Romanian, Czech, and Polish private consumers, would not need to register for those three countries. When they reach the EU-wide threshold and are registered for OSS in Germany and file a single tax return and pay one tax installment (instead of three). But, their local German B2C sales will require reporting on their local tax return, and local VAT is required to be paid.
What are the options for sellers from outside of EU? EU?
The VAT exemption for the importation of products with a value not exceeding EUR22.00 will be removed. As a result, all goods imported to the EU are subject to VAT. Non-EU sellers face a nil registration requirement, which means that they must register the first B2C sales.
To make VAT compliance easier for non-EU sellers, the Import One Stop Shop (IOSS)will be established. IOSS will allow single return filing for merchants who decide to charge VAT at point of sale on consignments below EUR150.00. If a business chooses not to sign up for IOSS VAT, it is paid by the purchaser upon importing items from within the EU. Consignments valued above EUR150.00 will be charged VAT at the time of import.
IOSS can also affect customs clearance, with the potential to process imported merchandise quicker. With some shipping providers where VAT was charged at the point of sale, then the seller can indicate the IOSS number in the Commercial Invoice data to the shipping company for customs declaration.
Information for merchants that is useful
To learn more about updating your tax settings check out our guide.
In the event of changing your tax settings, we strongly recommend contacting an expert in tax to make sure the regulations are met.