New European Union e-commerce regulations have completely transformed VAT compliance for online sellers. The two most important changes are new mechanisms to manage VAT compliance for online sales. Specifically, the One Stop Shop (OSS) and Import One Stop Shop (IOSS). If implemented properly, the OSS and IOSS can greatly simplify your VAT compliance on sales throughout the European Union.
What is OSS?
The OSS is a new mechanism to manage VAT on cross-border sales of goods and services throughout the EU.
To appreciate the value of the union OSS, it is important to understand the previous VAT regulations governing cross-border selling.
Under the old rules, a retailer was obliged to register for VAT in any EU country in which cross-border sales exceeded the specified VAT threshold.
Complex cross-border bureaucracy
For example, consider an e-commerce business based in France that sells goods to customers throughout Europe. Now suppose the annual value of those distance sales exceeded the VAT threshold in Spain, Poland and Germany. Under those conditions, the French company would be obliged to register for VAT in each of those countries. Once registered, the EU business would also be obliged to charge VAT on sales in those countries and file regular VAT returns.
In practice, that means that online retailers need to carefully monitor the value of their sales in each EU country. In each case where they breach the threshold, they need to register for VAT and comply with the local filing requirements. The situation is further complicated because the distance selling VAT threshold is different in each country.
A single digital VAT return
The VAT OSS greatly simplifies the VAT compliance process. Under the VAT OSS, you can manage the VAT on cross-border supplies of goods and services throughout the EU with a single VAT registration.
Instead of multiple VAT registrations, in several countries, an EU business simply needs to register for the OSS in a single country. They are then able to account for VAT on sales throughout the EU on a combined quarterly digital VAT return.
Distance selling thresholds are also simplified, as OSS obligations kick in once you exceed EU-wide annual sales of €10 000.
Complying with the OSS
There can be little doubt that the OSS simplifies VAT compliance. However, the new tax authority system introduces some complexities of its own.
Most basically, the OSS regulations are new. Along with the IOSS, these rules were introduced on 1 July 2021 as part of the EU VAT e-commerce package. Merchants are still coming to grips with the new VAT rules. And invariably, there have been some teething problems.
In addition, businesses need the appropriate technology in order to submit a valid digital OSS VAT return. Advanced compliance technology makes adapting to new VAT rules and regulations much simpler and easier.
Businesses are also obliged to keep exacting sales records, according to the OSS regulations.
What is the OSS VAT rate?
The OSS is an excellent way to consolidate VAT compliance on pan-EU customer sales. However, sellers are still obliged to charge VAT at the local rate of the country in which their EU consumers are based.
In other words, sales to EU consumers in Germany must be charged at the German VAT rate (currently 19%). Whereas European commission sales to customers in Slovenia would be charged at the current Slovenian rate of 22%. And so on.
What is IOSS?
So, what is IOSS? The IOSS fulfills many of the same functions of the OSS scheme, but with a few crucial differences.
The most important distinction is that the IOSS applies to imported goods. The OSS, by contrast, applies to goods that are already within the EU at the point of sale.
In addition, the IOSS only applies to goods that are worth no more than €150.
Goods that are subject to excise duties are not eligible for the IOSS.
See related: What is an IOSS Number?
Benefits of the IOSS
Broadly speaking, the IOSS offers similar benefits to the OSS scheme: you can account for the VAT on your sales throughout the EU with a single VAT return.
This is much simpler and more cost-effective than registering for VAT in multiple countries and complying with the local filing regulations.
The IOSS also offers a number of benefits to importers.
Under the IOSS, you charge VAT to the customer at the point of sale. You, therefore, are no longer obliged to manage import VAT at the border.
In addition, authorities have undertaken to fastrack import procedures for goods shipped using correct IOSS procedures.
In addition to simplifying VAT compliance for the seller, the IOSS thus also improves the customer experience. There are no surprise charges on delivery and the goods are more likely to arrive promptly.
Note that goods valued at over €150 are subject to ordinary foreign VAT requirements.
Which Should You Choose?
If you sell goods online, the IOSS and OSS are both excellent options. If your goods are already within the EU at the point of sale, then the OSS is the appropriate option. On the other hand, if the goods are outside the EU at the time the sale is made (i.e. the drop shipping model) and those goods meet the relevant criteria, then the IOSS can be an excellent way to manage your VAT.
Note, however, that the IOSS and OSS are not mandatory. You can continue to manage your VAT through alternative approaches, such as multiple VAT registrations. However, in most cases, these alternatives are more complex, costly and confusing. They also create a greater chance of accidental noncompliance in the long run.
At the same time, it’s important to bear in mind that VAT compliance is complicated. Any e-commerce business has a number of issues to consider. For example, warehousing goods in a different country can raise VAT issues. Similarly, fulfilling sales via or a 3PL provider, or selling goods through an online platform, may affect your compliance obligations.
For an integrated assessment of your entire value chain, you need the world’s VAT compliance and recovery specialist. VAT IT can provide the assistance, technology and strategic advice your company needs to fully optimise your VAT compliance and maximise VAT recovery.
Get in touch with VAT IT to get the most out of the OSS/IOSS and ensure you are always 100% VAT compliant.
