A New EU Tax Regulations: What OSS and IOSS Means for Your Store -
In 2021, on July 1 the new EU tax laws will be brought into play in the event that the European Union (EU) Value-Added Tax (VAT) eCommerce program goes into effective. These changes represent a significant revision of the current tax laws which are intended to make it easier for processes and administration for merchants. They will impact virtually every consumer-to-business (B2C) firm that conducts cross-border eCommerce (often referred to as "distance sellers") in the EU.
EU merchants who have crossed a new threshold for the EU that is EUR10,000.00 must register across all EU countries where they make taxable business-to-consumer sales. They can opt to do so via the new One Stop Shop (OSS) program in their home country. This allows eCommerce merchants to make a single VAT return for all the EU and pay a single tax payment, which is then distributed to all regions where they have sales.
Here are a few key changes below. Always, we suggest speaking with a tax professional to ensure your business adheres to the latest regulations as well as best practices.
Who will be impacted?
The EU VAT eCommerce program affects EU retailers that exceed an EU-wide threshold of EUR10,000.00 in addition to non-EU businesses exporting goods to the EU.
Merchants are able to make use of the One Stop Shop (OSS) file system to submit an identical VAT return for every country in the EU and to file a VAT return for every EU country that they ship to.
The VAT rate differs from country to country, ranging between 17% for Luxembourg and 27% within Hungary ( see the entire rate list) Therefore, merchants will want to charge the VAT rate applicable to the country of delivery when placing orders in the EU. It is applicable to orders delivered via a fulfillment center within the EU to any location within the EU.
What's changing?
The way it works:
The current scheme for distance selling allows businesses to avoid registering with VAT authorities in countries where they are making B2C taxable supplies, as long as the total amount of these supplies does not surpass the threshold of distance selling for a specific year. Businesses can apply their tax rates local to these sales, as if sold goods never left their country. When the threshold has been crossed in a given country the business must register, file VAT returns, and then impose the local tax rate from the registration country for B2C sales.
Let's consider the case of a German firm that offers physical goods to private customers in Romania. When the German company reaches the annual threshold for Romanian sales of EUR25,305.00, their sales are taxable to Germany which is a normal German tax rate of 19%.
After the threshold has been reached at EUR25,306.00 The Romanian sales are taxable in Romania and must register there and charge the Romanian normal VAT rate of 19 1 %.
What will it do following the change:
The 1st of July marks the day that distance selling thresholds for particular countries will be abolished in the EU, and a new threshold of EUR10,000.00 is set to be established. After the threshold is reached businesses will be required to sign up in the states where they are able to make tax-deductible B2C supplies, but they may choose to do so via the new One Stop Shop system in their own country.
This will allow eCommerce sellers to submit one VAT return across the entire EU and pay a single tax refund to the various those countries in which they supply. In a way, this program will work as a continuation of the current mini One Stop Shop (MOSS) scheme that is available to digital service companies.
So the German physical goods dealer who makes B2C tax-exempt supplies to Romanian, Czech, and Polish private customers, would be able to do so without registration in those three countries. If they meet the EU-wide threshold 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 have to be recorded on their tax return for the local area in addition to local VAT is required to be paid.
What about sellers outside from EU? EU?
The VAT exemption for the importation and use of goods with a value not exceeding EUR22.00 will be revoked. In the end, any goods that are imported to EU are affected by VAT. The non-EU seller has a nonexistent registration threshold, meaning they need to register with the first B2C transaction.
To make VAT compliance easier for non-EU sellers, the Import one Stop Shop (IOSS)will be established. IOSS will permit single tax return filing for merchants who decide to charge VAT at the point of sale on consignments below EUR150.00. If a business decides not to register for the IOSS VAT system, the tax will be charged by the buyer upon import of items from within the EU. Any goods valued over EUR150.00 are subject to VAT upon the import.
IOSS could also have an impact on customs clearance with the potential to process imported merchandise more quickly. With some shipping providers, if the VAT was assessed at the point of sale, sellers can provide the IOSS number within the Commercial Invoice information to the shipping provider for a customs declaration.
Useful information for Merchants
To learn more about updating your tax preferences, visit our documentation.
When updating your tax settings, it is highly recommended to consult with a tax professional to ensure the regulations are met.