The new 2021 EU VAT reforms are set to simplify the way ecommerce businesses trade cross-border and we know that these changes can sometimes be anything but simple to understand. Here we want to explore some of the important areas of preparation and actions businesses can take now to get ahead.
The introduction of the OSS and IOSS schemes on July 1 2021, will be the most significant reform of cross-border VAT liability for both businesses and marketplaces in 30 years. At SimplyVAT.com we’re here to help you understand the changes, what they mean for your business and areas you need prepare to remain compliant.
To briefly run through why you may require an OSS or IOSS registration, here are the main categories of businesses that may be eligible:
The One-Stop Shop (OSS) is split into two schemes, Union OSS and non-Union OSS. Union OSS can be used by EU based business to report the VAT due on intra-EU sales of goods and services. It can also be used by Non-EU established businesses to report the VAT due on the intra-EU sale of goods only.
Non-Union OSS can be used by Non-EU established businesses to report intra-EU B2C sales of services only.
The Import One-Stop Shop (IOSS) is for both EU and non-EU businesses and marketplaces, to report the VAT due on B2C distance sales of imported goods to EU customers. The IOSS scheme will only apply to consignments below EUR 150 however, as anything above this will be subject to import VAT and standard customs procedures.
While these changes may seem complex at first glance, understanding them comes with great benefits for businesses looking to continue cross-border trading with the EU. Some of these benefits are:
- Reduced administrative burden: These schemes enable users to report via a single electronic return on a monthly basis (for IOSS) and quarterly basis (for OSS).
- Reduced financial expenditure: As both OSS and IOSS only require users to register in a single EU member state, this prevents having to register in every EU country where they have customers, significantly reducing cost.
- Better customer experience: In the case of IOSS, goods will no longer be subject to VAT upon importation at customs and will be fast-tracked through clearance, improving overall customer experience.
- Wider expansion: Getting VAT compliant with OSS/IOSS can open the door to the EU market and help your business excel in one of the biggest global trading blocks.
1 – Decide whether OSS or IOSS would suit your business
Both OSS and IOSS can make ecommerce trade with the EU significantly easier and ensure VAT compliance is never a hindrance to international selling. The schemes offer an alternative to registering in every EU member state where you have customers, which can mean time consuming and costly registration and reporting processes.
OSS and IOSS may not be suitable for everyone’s business, particularly those who sell via marketplaces. Knowing what scheme may best serve your businesses VAT obligations can be difficult, that’s why we’ve put together an EU VAT Quiz that can help you understand what scheme you are eligible for and the next steps you can take.
2 – Review your pricing structure
The principle of the new EU VAT reforms is that businesses should be charging VAT where the consumer is based. This can often be difficult for businesses as EU VAT rates from country-to-country can range from 17-27%.
Particularly if you use IOSS and sell through your own website, you will be expected to charge the correct local rate of VAT at the point of sale, depending on where your customers are based. To account for this, you may want to review your pricing for the countries where you know your customers are based and re-price accordingly so that the VAT amount is balanced with your profit margins.
3 – Understand your VAT reporting responsibilities
If you are a business that sells through both a marketplace and a website of their own, these new changes can mean that you are liable for VAT on some of your supplies, and not for others. For example, in certain scenarios the marketplace (e.g. Amazon, eBay, Etsy) will be considered the deemed supplier and will be responsible for charging and collecting VAT on the sellers’ behalf (to find out more about this see our EU VAT eBook).
Alternatively, businesses who hold stock within an EU member state and make both domestic and cross-border sales will need to account for these transactions through separate VAT returns. OSS can be used only for cross-border sales, so for any sales made domestically VAT would need to be reported via a local registration and return.
4 – Take note of your consignment values
Previously, goods with a value of up to EUR22 have been exempt from VAT when imported into the EU. This has made for an uneven playing field between non-EU and EU businesses. In order to make the market fairer, this low value consignment relief exemption has been abolished, with VAT being due on all imported goods irrespective of value.
To mitigate the administrative burden this may cause for businesses, customs operators and couriers, the IOSS scheme is available, so that VAT due on these transactions can all be reported together on a single monthly return. Be mindful however that any consignments with a value exceeding EUR 150 will be outside the parameters of the IOSS scheme and will instead be subject to standard customs procedures.
5 – If you import high-value goods, appoint an Importer of Record
For distance sales of goods above EUR 150 you will need to decide on the terms you are selling/importing goods, which will be reflected in the incoterms you use to send your goods.
If you decide to be the importer of record for the goods, you will need to remit import VAT to the tax authorities in the EU Member State of importation. You will also need to register for VAT in that member state in order to recoup the import VAT paid on your periodic VAT return. You would then need to account for the transfer of goods on your local VAT return (providing the customer is in the same EU member state as your goods) or via the Union OSS (if the customer is in a different EU member state as your goods).
Alternatively, if you decide to make your customer the importer of record, the liability to remit the import VAT will shift from you to your customer when they receive the goods. This may mean you won’t need to VAT registering locally, but could damage customer experience as goods can be refused due to unexpected additional taxes at customs.
These changes can be daunting but are nonetheless essential to seamlessly sell throughout the EU past July 2021. At SimplyVAT.com our team of international VAT experts can discuss your specific business requirements and set you on the right path to cross-border selling compliantly. Get in touch today to arrange a call with one of our team members.