A New EU Tax Regulations: What OSS and IOSS Means for Your Store --
In 2021, on July 1 New EU tax laws will be brought into play in the event that the European Union (EU) Value-Added Tax (VAT) eCommerce program takes effects. These modifications are an extensive revision of the current tax laws, designed to simplify procedures and administrative requirements for merchants. The changes will affect virtually every consumer-to-business (B2C) company involved in cross-border eCommerce trade (often known as "distance sellers") in the EU.
EU merchants crossing a new EU-wide threshold of EUR10,000.00 must register across all EU countries where they make the taxable sales of business-to-consumer. However, they are able to do so via the newly-created One Stop Shop (OSS) system within their country. The OSS system allows eCommerce sellers to file an identical VAT return for all the EU and make just one tax payment distributed across nations where they sell.
We've highlighted some of the most significant changes below. As always, we recommend consulting with a tax professional to ensure your business follows the rules as well as best practices.
Who will be impacted?
The EU VAT eCommerce scheme affects EU merchants that are above the all-encompassing threshold for EU businesses of EUR10,000.00 as well as non-EU retailers import goods into the EU.
Merchants can choose to make use of their One Stop Shop (OSS) filing system for submitting one VAT return to every country in the EU as well as separately submit a VAT return for every EU nation that they send their goods to.
The VAT rate differs between countries, ranging from 17% in Luxembourg up to 27 percent for Hungary ( see the full list of rates) Therefore, merchants will want to charge the VAT rate of the buyer's shipping country for orders within the EU. It is applicable to orders delivered through a fulfillment centre in the EU to any location within the EU.
What's changing?
What is it and how does it work:
The present distance selling program lets businesses avoid having to register for VAT purposes within a country in which they make B2C tax-deductible supplies as long as the total amount of these supplies does not over the threshold for distance selling in a given year. Businesses apply their tax rates local to those sales as if the sold goods never left their country. If the threshold is reached in a given country it is required to sign up and file VAT returns and then charge the tax rate for the country of registration for B2C sales.
We will consider the case of a German company that sells physical goods to private customers in Romania. As long as the German firm reaches the annual limit of Romanian sales of EUR25,305.00 The sales of the company are tax-deductible to Germany which is a normal German VAT rate of 19 percent.
After the threshold has been reached, starting from EUR25,306.00 The Romanian sales become tax-deductible within Romania; they need to sign up and be charged the Romanian tax rate, which is 19%.
How it will work when the changes are in effect:
In July, the the thresholds for distance selling in certain nations will be eliminated, and a new EU-wide threshold of EUR10,000.00 will be introduced. When it's reached businesses will need to register in states where they are able to make tax-deductible B2C products, however they may choose to make this registration through the new One Stop Shop system in the country of their choice.
This will allow eCommerce merchants to file one VAT return across the whole of the EU and pay a single tax payment distributed amongst those countries in which they supply. It is akin to the program will work as a continuation of the existing miniature one Stop Shop (MOSS) scheme, available for digital service suppliers.
Thus, that the German physical goods seller, making B2C tax-exempt supplies for Romanian, Czech, and Polish private customers, would not have to be registered for those three countries. If they meet the threshold for EU-wide registration and are registered for OSS in Germany, file one return, and make one tax payment (instead from three). But, their local German B2C sales will need to be reported on their local tax return, and local VAT is required to be paid.
What about sellers outside of Europe? EU?
The VAT exemption granted for the importation of products with an amount not more than EUR22.00 is to be eliminated. In the end, every item imported into the EU are now affected by VAT. Non-EU sellers face a nil registration threshold, meaning they need to register with their first B2C sales.
In order to simplify the VAT compliance of sellers outside the EU, an Import one Stop Shop (IOSS)will be set up. IOSS will allow single return filing for merchants who opt to apply VAT at point of sale for consignments less than EUR150.00. If a business decides not to register for the IOSS, VAT will be charged by the purchaser upon importing items from within the EU. Any goods valued over EUR150.00 are subject to VAT on arrival.
IOSS could also have an impact on customs clearance, with the potential to process imported products quicker. For some shipping companies when VAT is assessed at the point of sale, the seller can indicate the IOSS number in the Commercial Invoice data and forward it to the shipping service provider for a customs declaration.
Useful information for Merchants
To learn more about updating your tax settings go to our tax documentation.
In the event of making changes to your tax settings we strongly recommend contacting a tax professional to ensure all regulations are being met.