It's the New EU Tax Regulations: What OSS and IOSS means for your store --
On July 1, 2021 the new EU tax regulations will be brought into play as the European Union (EU) Value-Added Tax (VAT) eCommerce tax package goes into effect. These modifications represent a substantial overhaul of current tax legislation that was created to improve processes and administration for merchants. The changes will affect virtually all business-to-consumer (B2C) companies involved in international eCommerce (often known as "distance sellers") that are in EU.
EU retailers who have reached a new threshold in the EU that's EUR10,000.00 must be registered for each of the EU countries in which they conduct taxes-free sales to consumers of business. The option to register is it through the just-launched One Stop Shop (OSS) system within their country. It allows online merchants to file one VAT return across all of the EU and make just one tax payment, which is then distributed in all the countries they sell.
Below are some important modifications below. We always recommend seeking out an expert tax consultant to be sure your business follows the regulations as well as most efficient practices.
Who is affected?
The EU VAT eCommerce program affects EU merchants above an European-wide limit of EUR10,000.00 as well as non-EU retailers import goods into the EU.
Merchants are able to utilize to benefit from the One Stop Shop (OSS) file system that permits them to submit one VAT return in all the countries within the EU as well as separately complete a VAT tax return for each EU country they ship to.
The tax rate for VAT is different from one country to the next and ranges from 17% for Luxembourg up to 27% in Hungary ( see the complete rate list) Therefore, merchants are required to use the VAT rate applicable to the delivery country for orders that are within the EU. It is applicable to orders delivered via one of the fulfillment centers in the EU anywhere in the EU.
What's changing?
What is it and how is it used:
The current scheme of distance selling permits businesses to not register with VAT authorities in the countries which sell B2C tax-deductible items, as long as the value of those supplies isn't greater than the amount that is required for distance selling during a particular year. Businesses apply their tax rates for these sales locally like if the goods sold have never been exported from their country of origin. If the threshold is reached within a specific country, the company must sign up and file tax returns for VAT and assess the local tax rate applicable to the area of B2C registration sales.
The company we will look at is an German company that sells physical products to customers from Romania. The sales will continue until the German company reaches the annual cap of Romanian revenue in the amount of EUR25,305.00 The sales of the company are taxable in Germany and subject to the standard German VAT rates of 19 percent.
When the threshold has been crossed at EUR25,306.00 This Romanian sales will be taxed within Romania and must be registered as well as pay the Romanian regular tax rate of 191 %.
What will happen when the changes are in effect:
The first day of July will be the date when deadlines for selling on the internet for specific countries are set to be removed along with a new threshold for Europe-wide sales of EUR10,000.00 is set to be introduced. After the threshold is reached the business will be required to sign up in the countries where they produce tax-deductible B2C products. However, they could choose to do this registration using the brand new One Stop Shop system in their own country.
The program will allow eCommerce sellers to submit a single VAT tax return throughout the EU and make a single tax-paying payment, which is then distributed to the countries in which they supply. It is akin to the program will work as a continuation of the current miniature one Stop Shop (MOSS) program which is accessible for online service providers.
Thus, it's the German physical goods vendor that makes B2C-taxable supply towards Romanian, Czech, and Polish private customers. They would not need to be registered in any of these countries. If they are able to meet the minimum requirements for registration across Europe, the business is able to sign up OSS in Germany and file a single return and pay one tax payment (instead instead of three). But, home country German B2C transactions will have to be recorded on their tax return to the local area and local VAT which will have to be paid.
What is the best option for sellers from outside within EU? EU?
The VAT exemption granted for the importation of products in the amount of not more than EUR22.00 will be removed. In the end, every item imported into the EU will be liable to VAT. The non-EU seller has an insufficient registration requirement meaning that they have to sign up for their first B2C sales.
To make VAT compliance easier for those selling outside the EU, an Import One Stop Shop (IOSS)will be established. IOSS will permit a single submission of returns to merchants that decide to collect VAT at the moment of sale on orders less than EUR150.00. If a business chooses not to join the IOSS VAT, the tax will be paid by the customer when importing goods from the EU. Anything valued above EUR150.00 will be assessed VAT upon arrival.
IOSS can also affect customs clearance, with the potential of processing imported goods more quickly. In the case of some shipping services that have VAT calculated upon sale sellers can then mention the IOSS number on the commercial invoice data and send it and the shipping firm will make a declaration of customs.
Merchants can find information that's useful
For more information about changing your tax preferences, go to our document.
In the event of making any modifications to tax settings we strongly advise contacting a professional in taxation to confirm you are complying with the tax laws.
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