Together with the new OSS (One Stop Shop) VAT scheme, the EU also introduced a new Import One Stop Shop, or IOSS voluntary VAT scheme on 1 July 2021. This applies to business-to-consumer (B2C) transactions and is aimed to make life easier for both, sellers and buyers.
Previous VAT rules for cross-border sellers
Before looking into IOSS registration in more detail, let’s look into the VAT rules for cross-border sales that were valid until now for selling goods to consumers in several EU countries:
- Each EU country has its VAT threshold per calendar year. You only have to register for VAT and declare it if you go over the threshold in each country separately during one calendar year. See the list of all VAT thresholds here.
- Therefore, you have to follow VAT rules and thresholds in each country where the goods are sold. For example, if you sell goods in multiple countries such as Spain, France, and Germany, then you have to register for VAT in each of those countries that exceed the specified thresholds.
What is the OSS VAT scheme?
To understand the IOSS, we should explain the new OSS VAT scheme. Main facts to know about OSS:
- Voluntary VAT scheme to make VAT declaration easier.
- Companies selling goods to the end consumer (B2C) in the EU countries register for a VAT number in one country rather than in all the countries where the sales are made.
- You will start paying the VAT from the first sale.
- If your company is established in one of the EU countries and pays taxes there, you can register for the OSS VAT scheme only in the country where the company was established. For example, if your company was established in Estonia, you also have to register the OSS in Estonia.
- Can be used by a business from a third country (office located outside of the EU and no permanent establishment in the EU Member States) but they have to have e-shop storage in the EU from where they deliver goods to the end consumers in the EU.
- Read more from our Guide to OSS VAT scheme
What is the IOSS?
To ensure a smooth transition to the new system, the EU has also created the Import One Stop Shop, or IOSS. Very similar to the OSS, the IOSS aims to simplify the declaration of the low-value consignments (up to 150 €) imported from third countries to sell to the end consumers inside the EU. Basically, the IOSS is an option that businesses importing from third countries can use to comply with their VAT obligations on cross-border sales of imported goods.
It’s also important to understand that IOSS can be registered and is beneficial for both:
- EU businesses who import from third countries to the EU
- Third country businesses who import from third countries to the EU
So, a business that imports goods to the EU will only register and pay the VAT upon the import of goods in one EU country, not in every country where the goods are sold. Therefore, the IOSS system facilitates the collection, declaration, and payment of VAT for sellers who are selling imported goods to buyers in the EU.
But as already mentioned, IOSS is also making life easier for buyers – from now on they will only be charged at the time of purchase, and therefore do not face any surprise fees when the goods are delivered.
IOSS registration is voluntary, so what happens if you choose not to use this scheme? In that case, the buyers will have to pay the VAT and customs clearance fee at the moment the goods are imported into the EU. That might not always be the case because each country has the right to choose who will be responsible for the VAT of a shipment. That is why it is important to check the VAT rules of each country where you import if you don’t register for the IOSS scheme. They will decide if the VAT is paid by the company, the consumer, or the platform where the goods are sold.
Main facts you should know about VAT as an IOSS-seller when importing goods to the EU from third countries:
- The exemption for the import of consignments with a value of up to 22 € will be lost. As a result, all goods imported into the EU are subject to VAT.
- The IOSS scheme can be used for goods that value does not exceed 150 € (excluding transport and insurance, unless these are included in the price) and which are not taxable with an excise tax.
- A company that uses the IOSS scheme adds the payable VAT already at the point of sale (for example include the VAT in the e-shop prices). In that case, the customers don’t have any additional tax obligations when receiving the goods.
- The IOSS scheme can be used by both third country businesses and EU businesses who import goods from third countries to the EU.
- If you want to use either OSS or IOSS scheme, your company has to be registered as a VAT payer in the country of origin. For example, if your company is established in Germany and you want to register as a IOSS seller, you have to have a VAT number in Germany before you can do that.
- If a third country business doesn’t have a seat or place of business in the EU but wants to register for the IOSS scheme, then they have to find an intermediary who will act on their behalf to fulfil the duties related to the IOSS scheme.
Limitations of the IOSS scheme?
Of course, there are some limitations to the new system. IOSS can only be used if:
- The imported goods are not worth more than 150 €
- You are an online seller or electronic interfaces (online marketplace, platform, etc)
- You are selling directly to end consumers
- The imported goods are shipped from outside the EU
- The imported goods are not subject to any excise duties (products such as alcohol, tobacco, energy, or anything that requires indirect taxes on the sale or use)
Why should you register for the IOSS?
IOSS offers simplified and standardised VAT solutions that save both you and your customers time and headaches.
IOSS benefits for sellers:
- Administrative overheads reduced – when you register your business as an IOSS seller in one EU member state, you can use this registration to do business in the entire EU. Of course, the VAT return and payments are due in the country where the registration was done.
- Central clearance option – as of July 2021, there is no longer a central clearance option for non-IOSS sellers. In that case, the VAT rate is the one applicable in the customer’s country and you will be obliged to arrange direct transport to each individual EU country.
- Custom clearance times reduced – goods imported by an IOSS seller will only be checked for a valid IOSS number before they are being dispatched to the customer. At the same time, goods sold through non-IOSS businesses can only be cleared after VAT has been collected.
IOSS benefits for customers:
- No additional taxes or customs fees – surely customers are not preferring sellers with whom they need to pay additional taxes and customs fees. As a result, IOSS sellers can advertise products at the total price (including VAT) and offer transparency, which is a big advantage.
- Hassle-free transactions – with IOSS sellers, customers don’t have to go through multiple procedures to pay the VAT or customs clearance fees when their goods enter the EU, the payment is already done on purchase.
- Faster delivery – IOSS-registered goods will speed through customs thanks to the simplified and standardised system. When buying from non-IOSS suppliers, customers will lose a lot of time trying to get their shipments past the border.
To further explain how this system offers a more transparent and reasonable solution, let’s look into an example:
When shipping a 10 € product from a third country to the EU, for example to Belgium, your product is subject to a customs fee of 15 €. With a 21% VAT rate in Belgium, another 5.25 € will be charged. Therefore, your customer will be charged over 30 € for this small purchase. On the other hand, if you are an IOSS-seller, different regulations will apply and then your customer will only pay the VAT surcharge, making the total price 12.10 €.
How to do the IOSS registration?
It is possible to register businesses on the IOSS portal of any EU Member State. Of course, if the business is not based in the EU, it will need to appoint an EU-established intermediary to fulfil their VAT obligations under IOSS.
Therefore, if an intermediary is anyway needed, many businesses decide to use professional help in doing the IOSS registration. With 1Office, the registration service includes preparing the application and submitting it to the Tax and Customs Board. Read more about the registration service here.
What obligations come with the IOSS registration?
After the IOSS registration is done, you need to provide some details for customs clearance in the EU, including the IOSS VAT identification number to the person declaring the goods at the EU border.
Regarding accounting there are some monthly obligations – you need to submit an electronic monthly VAT declarations via the IOSS portal of the EU state where you registered as an IOSS-seller and make a monthly payment of the VAT declared in the VAT return. Also, you need to keep records of all eligible IOSS sales over 10 years.
If you are not an accountant yourself, it’s definitely recommended to use professional help for these declarations. You can check out this OSS/IOSS accounting package for example.
If you are a seller who can benefit from using either OSS or IOSS schemes, there are some details you need to think about before the registration. In case you need help in sorting out your needs, registering for these schemes, or submitting the declarations, 1Office’s professionals are more than happy to help you.