On July 1, 2021, the way VAT is handled for online sales from businesses all over the world to consumers (B2C) in the European Union (EU) changed.
Businesses outside of the EU, including the UK, can benefit from the changes.
One Stop Shop (OSS) and Import One Stop Shop are the two key components of the EU VAT E-commerce Package, which are commonly referred to as the EU VAT E-commerce Package (IOSS).
What are the new VAT e-commerce measures in the European Union?
The EU VAT e-commerce legislation’s goal is to make life easier for ecommerce businesses selling to consumers across national borders in the EU, thereby facilitating trade.
Anyone who has used the Mini One-Stop-Shop (MOSS) for certain types of digital services is familiar with the advantages of this type of simplification.
The new measures broaden MOSS to include more services and goods, including those imported into the EU, potentially simplifying VAT for a wider range of transactions.
It’s important to note right away that neither OSS nor IOSS are required.
Businesses can also register for, account for, and pay VAT in each EU country where they sell to consumers as an alternative.
Of course, this is inconvenient administratively, which is why OSS and IOSS were created.
It’s also worth noting that these new VAT measures are only applicable to online sales to EU consumers.
B2B sales of services from a business in the UK to a business in an EU country will continue as before after the Brexit transition period ends on January 1, 2021, i.e., B2B sales of services will be subject to the reverse charge.
Goods exports should be zero-rated, but they will be taxed in the destination country when import VAT is applied.
One Stop Shop (OSS)
This is a new online portal for businesses to report and pay non-domestic VAT for services and online intra-community distance sales of goods to consumers across the EU.
A VATable supply of goods from one EU country to a consumer in another EU country is referred to as an intra-community distance sale.
Union OSS and non-Union OSS are the two types of OSS.
Businesses with a presence in the EU can use the Union OSS to report VAT on intra-community distance sales as well as non-domestic sales of services to EU consumers. Businesses based outside the EU can also use the Union OSS, but only for the purpose of reporting intra-community distance sales of goods.
Businesses based outside of the EU can use the non-Union OSS to report VAT on services sold to EU consumers only.
The term “taxable person who has not established [their] business in the territory of the Community and who has no fixed establishment there” is defined as “a taxable person who has not established [their] business in the territory of the Community and who has no fixed establishment there.”
“A sufficient degree of permanence and a suitable structure in terms of human and technical resources to receive and use or make the respective supplies” is what a fixed establishment is defined as.
Notably, if a company simply has a VAT number in an EU country, it is not considered to have a fixed establishment.
The OSS scheme is very similar to the MOSS scheme in terms of administration.
The destination country’s VAT rate is applied at the point of sale, then reported and paid quarterly through an online portal.
The domestic VAT Return is still used to report domestic supplies.
It should be noted that regardless of whether OSS is used, sales that can be reported through OSS are subject to destination VAT.
The goal of OSS is to make taxes easier to understand.
It means that businesses can report and pay VAT for all B2C sales to all EU countries that are subject to destination VAT in one fell swoop.
That’s with a secure communications network running in the background, distributing the information and payments to the appropriate EU countries based on the information provided on the return.
In particular, if you join OSS, you must use it for all supplies to EU customers.
A UK online seller, for example, could not use it for supplies of services made in France, but could report sales of services to Ireland by registering for VAT with the Irish Revenue. Online sales to Irish customers must also be reported to OSS.
Non-EU businesses must register with the tax authority in the EU country of their choice in order to use the non-Union OSS for services.
The older Mini One Stop Shop scheme had a €10,000 (£8,600) turnover threshold for ‘TBE services’ (telecommunications, broadcasting, and electronic), which now also applies to intra-community distance sales but not other services.
Import One Stop Shop (IOSS)
IOSS is once again an option. If it isn’t used, a UK seller will continue to zero-rate exports for domestic VAT purposes, and the VAT will be applied when the goods are imported.
IOSS, on the other hand, provides a method of accounting for VAT that reduces customer confusion by allowing them to see a single accurate cost. It should also make it easier for goods to move across national borders.
In terms of administration, the scheme is similar to the OSS in that when a seller signs up for IOSS, they can report and pay VAT through a single online portal – though this is done monthly rather than quarterly.
However, it only applies to B2C imports of goods into the EU from outside the EU through online sales (from a so-called third country or third territory).
Only consignments of €150 (£130) or less, or equivalent local currency in the consumer’s country, are eligible for IOSS.
If the seller chooses to register for and use IOSS, the seller will be charged and collected VAT from the destination country at the point of sale.
Businesses may wonder why they should care about IOSS. Customer satisfaction should be the primary focus.
As previously stated, using IOSS allows goods to pass through customs more quickly because the VAT has already been calculated and accounted for, rather than having to be applied at the time of import.
It also means that the end customer has complete visibility of the cost at the point of sale and will not be surprised by additional costs later on when the goods pass through customs.
One important caveat is that IOSS only applies to consignments, not individual items. IOSS does not apply if a consumer orders multiple items totaling more than €150 (£130) that are dispatched in the same order. In addition, IOSS only applies to items that are not subject to excise taxes (e.g. alcohol or tobacco products).
IOSS can be used by both EU-based and non-EU-based businesses, but businesses not based in the EU must also appoint an intermediary to act on their behalf in the country of registration.
It is not necessary to appoint an intermediary if the country where you are established is outside of the EU but has a mutual assistance agreement with the EU for VAT recovery. Because the United Kingdom currently lacks such a tax arrangement, an intermediary will be required for the time being.
Removal of distance-selling thresholds
On July 1, 2021, the EU’s place of supply/distance selling thresholds were removed.
Previously, VAT was only applicable to intra-community distance sales if annual turnover exceeded €35,000 (£31,000) for most EU countries, or €100,000 (£86,000) for Germany, the Netherlands, and Luxembourg.
The removal of the threshold was a required change that affects any company that conducts intra-community distance sales, regardless of whether it uses OSS or not. The removal of the threshold coincided with the implementation of OSS and serves as a powerful incentive to use it.
It’s also worth noting that the place of supply rules for services haven’t changed.
That is, the place where a service sale is taxed now will be the same place where it is taxed after July 1, 2021. However, with the expansion of MOSS to OSS, any B2C service sale subject to destination VAT, not just TBE services, will be able to be reported through OSS.
Abolishing of (LVCR) Low-Value Consignment Relief
Imports of goods costing less than €22 (£20) are no longer VAT-free.
VAT must be charged on all goods, whether through import VAT at the point of entry or through the IOSS at the point of sale by the seller. However, keep in mind that this is only available on B2C orders of €150 (£130) or less.
The measure was put in place to level the playing field between domestic and non-domestic sellers, who were previously perceived to have an unfair advantage when selling goods under €22 (£20).
While low-value goods imported into the EU now have to pay VAT, sellers can use the IOSS to help with the VAT administration.
Online marketplaces (deemed supplier rules)
In certain cases when distance selling to EU consumers, the new rules also make so-called “electronic interface” marketplaces and platforms, such as Amazon and eBay, the deemed supplier for VAT purposes.
Sellers who use sites like the aforementioned marketplaces and platforms are affected. Smaller businesses, such as online antique dealers who sell items on behalf of clients, may be affected.
Sellers who use these marketplaces don’t have to account for VAT at the point of sale thanks to deemed supplier rules.
In effect, each consumer purchase process entails selling goods to an online marketplace, which then sells the goods to the consumer while accounting for VAT.
Where the seller is not established in the EU, a deemed supplier can use the OSS to report VAT on intra-community supplies between EU countries, as well as supplies within the same country (for example, goods sent from someone in Ireland to an Irish consumer).
In other words, using the OSS eliminates the need for a deemed supplier to report a sale as a domestic supply for VAT purposes. They can also use IOSS to report VAT on B2C imports into the EU with a value of less than €150 (£130).
Northern Ireland and the IOSS/OSS/
Despite the fact that this document refers to the United Kingdom, businesses in Northern Ireland may find themselves subject to different rules.
This is because they are effectively part of the EU VAT regime in respect of goods but not in respect of services, thanks to the Northern Ireland Protocol.
This suggests that businesses in Northern Ireland may be required to report all distance sales of goods through the Union OSS while reporting services through the non-union OSS.
The UK government has yet to issue guidance on how businesses in the UK, including those in Northern Ireland, should approach the OSS and IOSS if they want to use them. More information will be added to this blog as it becomes available.
Do you require assistance with your VAT compliance in Ireland?
The first step in determining your VAT compliance requirements is to research Irish VAT legislation. Depending on where and how you trade, TAS Consulting Limited has a variety of solutions that can help you.
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