What are the new VAT rules for online sales to EU customers?
21/09/21
The One Stop Shop scheme (OSS) and Import One Stop Shop scheme (IOSS) introduced in July 2021 aim to simplify the VAT compliance burden on online sellers. In this article, we look at both schemes and how they work for UK businesses.
The new VAT rules, known as ‘the EU VAT e-commerce package’, comprise two components, the OSS and the IOSS. Both schemes are optional. The alternative is for e-commerce businesses to register for VAT, complete returns and pay VAT in each member state where they sell to consumers.
However, you still have to monitor your sales in each member state. The European Union has introduced a new EU-wide threshold of €10,000 (around £8,500), which applies in respect of sales in the EU. As soon as your sales are above this sum in one country, you must register for VAT in that country. But you could still use the OSS and IOSS in the other member states.
The OSS and IOSS make life easier for online businesses, especially ones that sell in multiple member states.
Who can use the OSS and IOSS schemes?
The schemes are restricted to businesses that supply services online to consumers in the EU.
How do the schemes work?
- OSS
OSS is an online portal that enables businesses supplying services to consumers in the EU to complete one VAT return for all sales, although the seller must apply the VAT rate for each state in which goods are sold. Non-EU sellers, such as UK businesses, can apply to use the OSS regime and nominate any single EU state to register with.
Once signed up to the OSS, businesses must report all their eligible supplies through the scheme – they can’t pick and choose certain supplies.
Businesses must apply the local VAT rate of the destination country for each product at the point of sale. A single quarterly return and payment is made through the online portal, so businesses have no excuse to miss deadlines. Penalties can be applied by different member states where payments are missed. Repeated failure to meet deadlines may result in expulsion from the scheme.
The purpose of the OSS is to report payable VAT. You can still deduct VAT incurred on the scheme as you would on a local VAT return.
- IOSS
The IOSS scheme is for the online sale of goods imported in the EU from a third country in consignments worth up to €150 (around £130).
The scheme means sellers don’t have to pay import VAT at clearance on low-value consignments but instead can charge customers VAT at the point of sale via their website. This enables goods to travel through customs quicker and means the customer does not face additional costs after sale. If the IOSS is not used, import VAT is applied at customs.
The scheme allows EU and non-EU businesses to report the value due on the sale of imported goods to EU consumers in a single monthly return and VAT payment.
Anyone can register for the IOSS scheme, including online sellers and marketplaces
Appointment of intermediary
To use the IOSS (and sometimes also when using the OSS), UK businesses (as non-EU sellers) must appoint an intermediary to act on their behalf in the country of registration. An intermediary is a taxable person established in an EU country responsible for declaring and paying VAT on behalf of the non-EU seller.
The intermediary becomes jointly liable for any VAT owed by the seller on these types of transactions. However, due to the mutual assistance clause in the Brexit trade and cooperation deal, some EU countries have stated that the intermediary obligations are not required for UK businesses who should be able to register via HMRC. This has caused confusion, and the UK is negotiating with the EU on this matter.
Goods with an intrinsic value above €150
If the intrinsic value of goods ordered by an EU consumer goes above €150, the consignment will no longer be eligible for IOSS, and VAT will become due on importation. The intrinsic value of goods should be the price of the goods when purchased by an EU customer, excluding transport and insurance costs (unless included in the price of the goods) and taxes.
What about UK businesses selling through online marketplaces such as Amazon or eBay?
UK businesses selling through online marketplaces such as Amazon or eBay may not need to account for VAT as the marketplace will become the deemed supplier and deal with VAT. If you sell through an online marketplace, you should contact them to find out how to proceed.
End of low-value consignment relief
Low-value consignment relief, which exempted from VAT goods imported into the EU of less than €22 (£20), ended on 1 July 2021. VAT is now charged on all goods entering the EU.
The EU VAT reforms have had a profound impact on online sellers, and there remain several areas of confusion. If you have any queries concerning the One Stop Shop or Import One Stop Shop or would like help registering with them, please contact us.
Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances. We suggest you take professional advice before taking any action in relation to the issues discussed above.
