NEW EUROPEAN VAT LEGISLATION — OSS (ONE STOP SHOP)
E-commerce and VAT. For most entrepreneurs it is not their cup of tea. As of July 1, 2021, a European legislative amendment has been introduced, which aims to make VAT easier, also known as the OSS (One Stop Shop). But is this the case? There are a lot of changes so we will explain it step-by-step for you. We will start with the changes right away, after that we will dive into the background.
WHICH LEGISLATION For E-COMMERCE APPLIES FROM JULY 1, 2021?
From the summer of 2021, a large package of European regulations will enter into force. You can divide it into the following topics:
- All long distance sales thresholds expire; there will be one threshold for all countries of €10,000.
- Are you selling in multiple European countries? You will be able to file a single declaration (OSS) for all these countries.
- You do not need to register an extra VAT number in countries where you cross the long distance sales threshold.
- The recipient pays VAT on all imported products. Products from China of €22.00 or less are therefore no longer free from import VAT.
- Marketplaces are required to collect VAT when a product is sold through them, but shipped directly to the customer from outside the EU.
There are a lot of changes!
How will it work for sellers in the United Kingdom?
The United Kingdkom has left the EU on 31 December 2020.This means UK entrepreneurs are now non-EU sellers at the same time as the introduction of the July 2021 e-commerce vat reforms. UK sellers will be able to register for the new OSS legislation. They will have to register in one of the EU states to file a ‘non-Union’ OSS return.
What are long distance sales and how does the €10,000 threshold work in Europe?
Imagine selling products from Germany to Dutch, French and Swedish customers. To Dutch customers, you sell a total of €3,000 per year, the French €5,000 and the Swedish €2,500, which means your long distance sales are €10,500 per year. The first €10,000 can be indicated in Germany and you will be counting on 19% VAT. On the €500 you charge the VAT rate applicable in the customer’s country. So French customers charge 20% VAT, Dutch 21% and Swedish 25%. Please note that it is mandatory to mention those VAT rates on invoices to foreign customers too!
What is the MOSS and OSS?
The MOSS is a portal to report VAT on cross-border sales (in the Netherlands it is also referred to as the Union Scheme). Every EU country offers the opportunity to register for the Mini One-Stop Shop (MOSS). The abbreviation has been MOSS for a long time, but more and more people refer to it as OSS. The word mini doesn’t really fit the size of the One-Stop-Shop that was formerly used only for e-services. As of July 1, you can file a return with the OSS through the Tax Administration portal for all countries in which you sell through long distance sales above the threshold of €10,000 per year. So you will not be able to file a return in the OSS for sales you make through Amazon FBA, for example.
Please note that the OSS is not mandatory. You can still report in the countries where you sell when you cross the €10,000 threshold. However, the OSS does not allow you to reimburse VAT. If you want to refund VAT from other EU countries, you can not use the OSS. It is not possible to use the OSS for a few countries at the same time and to make the foreign declaration separately in other countries.
What is the difference between OSS and IOSS?
You use the OSS to report your long distance sales to other EU countries. The IOSS is used to indicate all EU import VAT on products with a value of less than €150.
What is the IOSS or Import Scheme?
The Import One-Stop Shop (IOSS) is a portal where you can pay import VAT. Imagine importing products with a value below €150, you previously did not have to pay import VAT on products below €22 because it would do too much work at customs.
As of July 1, 2021, this has to be done. How can you speed up the import process? By requesting an IOSS number and putting it on your imported products. Then you can use the IOSS to indicate how much you have imported into the country in question. Is your customer in Germany and did you send those €20 Whisky Stones there? Then you pay 19% import VAT in Germany.
How do I register for the Union Regulation (OSS)?
You can request access to the OSS (Union Rule) through the Tax Administration Business Portal when you meet the requirements:
- You sell goods from the UK or an EU country to customers from another EU country. These are customers and not companies. Unless the company you sell to has an exception to file VAT.
- You take care of the shipping of your products yourself.
- You don’t sell margin goods, means of transport or assembly supplies.
How do I register for the Import Scheme (IOSS)?
Register for the Import Scheme (IOSS) and request an IOSS number from through an EU Tax Administration Business Portal. You can use it as long as you meet the following requirements:
- You deliver goods directly from outside the EU to the customer, not to a company. The only exception is a company does not have to file a VAT return.
- The products you ship together are worth no more than €150 (excluding insurance and shipping costs) and you will take care of the shipping yourself.
- You do not sell excise goods.
OMP/ DEEMED MARKETPLACE
If sales of shipments are not more than €150 sold through an ‘electronic interface’ (‘EI’), which includes online marketplaces (OMP) such as Amazon, then the marketplace is responsible for collecting and reiming VAT on this sale. This is already the situation in the UK. Amazon is the supplier, in the EU we have a similar arrangement called marketplace fiction from 01-07-2021. It can be compared with the US marketplace facilitator laws.
Suppose, a package of Whiskey Stones (cheaper than €150) sells to a German customer via Amazon.de. You are sending the bricks to the customer yourself, so they’re imported into Germany. Import VAT will be paid at customs. After this, the periodic declaration states that the Whisky Stones were first sold fictitiously to Amazon at 0% VAT. Amazon will then be the marketplace fiction/deemed supplier and therefore responsible for collecting and reimbursing VAT on that sale. Amazon will no longer transfer you your sales including VAT but will withhold VAT and report it to the German Tax autorities itself. For sales through its own webshop where the goods are already present in Germany, the normal rules governing the return and payment of VAT apply.
While you will need a VAT number to do the import in the EU, Electronic interfaces (‘EI’) might require you to register for VAT as well. The situation described above, is the same as if you are dropshipping products from China, selling them through Amazon and have your supplier send them directly towards your customer.
Background of changes
All these VAT laws are being adapted to combat fraud, create fairer competition and facilitate better tax returns. For smaller businesses in particular, it is easier to make all their returns through one country. These companies still will have to keep track of their country sales, which is the most work.
A greater impact is likely for dropshippers. Since VAT free import of products below €22 has been removed, the competitive advantage over sellers who shipped products to their customers within the EU is gone now.
Want to know more about the MOSS, IOSS or VAT return in Europe? Or would you like to outsource it to an experienced party? Contact us!