On 1 July 2021, the European Union introduced new VAT rules as well as the IOSS. But what is IOSS exactly? The EU Import One Stop Shop (IOSS) is a special mechanism designed to simplify VAT compliance on the distance sale of imported goods. The IOSS applies to goods imported into an EU member state, valued at no more than €150.
The IOSS is part of the EU’s VAT e-commerce package. With the IOSS, managing VAT on your sales throughout Europe becomes simpler and easier.
To appreciate how the IOSS simplifies VAT compliance, we need to appreciate the alternative VAT compliance approaches.
Distance selling in the EU: Your VAT options
Online sales in the EU are subject to distance sales rules. Distance selling refers to the supply of goods to customers in an EU country dispatched from another country. For example, suppose an online retailer is based in Poland. If a customer in Germany purchases goods on the company’s website and those goods are shipped to the EU customer in Poland, distance selling has occurred.
This is important from a VAT perspective because of the EU’s distance selling rules. Whenever you exceed the distance selling sales threshold in an EU country, you are obliged to register for VAT in that country. Once registered, you are obliged to charge VAT (at the local VAT rate of the EU member state) and file regular VAT returns.
Now suppose the same company supplies goods to customers throughout the EU. In every country in which its sales exceed the local threshold, it is obliged to register for VAT. In practice, online retailers are often obliged to register for VAT in several countries. That’s a very significant and costly administrative burden.
Why the IOSS is a game–changer
The IOSS greatly simplifies VAT compliance on distance selling. If you choose to use the IOSS, you can account for your sales throughout the EU with a single quarterly IOSS VAT return.
Previously, you had no option but to register for VAT in multiple countries and file multiple VAT returns, in different languages, according to varying deadlines.
Now, you can register for the IOSS in just one country and account for all your sales with a single consolidated return.
Benefits for the buyer
The benefit of IOSS VAT registration is a game-changer for the seller, but there are benefits for the buyer as well. The IOSS also makes the online shopping experience better in two important ways.
Firstly, customers pay VAT when they purchase the item. They know the full cost of their goods, inclusive of VAT. There are no additional surprise expenses upon delivery. If the IOSS registration has not been done by the seller, then the buyer may have to pay customs clearance fees as well.
The IOSS can also expedite the shipping process. EU regulators say that goods shipped via the IOSS will be fast-tracked through customs.
These factors add up to a better shopping experience for your customers: no surprise charges and speedy, reliable delivery.
An end to import exemptions
The EU removed the import VAT exemption on low value goods on 1 July 2021. Prior to that date, goods worth less than €22 were not subject to import VAT. Now, however, all goods imported into the EU are now subject to import VAT.
At the same time, the IOSS simplifies EU VAT compliance on goods worth no more than €150.
The upshot is that any company that imports goods valued at €150 or less (such as certain dropshipping retailers) has a strong incentive to use the IOSS.
When to use the IOSS
The IOSS is not mandatory. However, it is obligatory to account for VAT on distance selling through some mechanism. Considering the relative complexity of the alternative VAT compliance options, and the added benefits of the IOSS, the IOSS offers clear advantages to many sellers.
As discussed above, however, the IOSS only applies when:
• Goods are located outside the EU at the point of sale
• The items are worth no more than €150
Note that any goods subject to excise are not eligible for the IOSS.
Why Was IOSS Created?
As e-commerce and digital services have become central to the economy, EU regulators have sought to modernise and streamline VAT regulations to meet the demands of the new economy.
The IOSS is part of a broader set of VAT reforms designed to simplify e-commerce compliance. The EU VAT e-commerce package created two important new VAT compliance protocols. In addition to the IOSS, the package also introduced the One Stop Shop (OSS). The OSS applies to goods located within the EU at the time the sale is made as opposed to imported goods from outside the EU states.
Do I need special technology to use the IOSS?
The IOSS is a simpler, less costly and more streamlined way to manage VAT on distance sales in Europe. However, it involves filing regular electronic VAT returns. These need to be complete and accurate in order to ensure compliance is met.
Businesses should ensure they have best-in-class VAT software to seamlessly and efficiently meet IOSS filing obligations.
And while the IOSS greatly simplifies VAT compliance, it is still a relatively new protocol. A number of retailers have already experienced teething problems. To get the most out of the IOSS, and guarantee 100% compliance, get in touch with VAT IT. As the world’s VAT compliance and reclaim specialist, we can provide an end-to-end solution designed to optimise your international VAT compliance.
