The EU introduces a new One Stop Shop (OSS) voluntary VAT scheme that enters into force on 1 July 2021. The change aims to reduce VAT fraud and create equal competition between EU countries and third countries (non-EU countries).
It mainly affects e-commerce companies selling goods to consumers in multiple EU countries.
Current VAT rules for cross-border sales within the EU
Let’s do a quick recap of the current VAT rules if you are selling goods to consumers in several EU countries.
- Each EU country has its VAT threshold per calendar year. See the list of all VAT thresholds here. You only have to register for VAT and declare it if you go over the threshold in each country separately during one calendar year.
- 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.
The idea behind these rules was to make selling easier for small businesses, so they wouldn’t be affected by high VAT rates in all the countries they sell.
What is the MOSS scheme?
MOSS stands for Mini One Stop Shop and is, in general, a predecessor for the OSS scheme. MOSS was only applicable for telecommunication, broadcasting, and digital services and not for physical goods. From 1 July 2021, all the digital services will also go under the OSS scheme, meaning there will not be a separate VAT scheme for digital services anymore.
How does VAT OSS change tax declaration from 1 July 2021?
The new OSS scheme is voluntary to make VAT declaration easier for businesses. The main idea of the OSS scheme is that the company selling goods to the end consumer (B2C sales) in the EU countries can only register for a VAT number in one country rather than in all the countries where the sales are made.
The OSS return is filed quarterly and separately from the domestic VAT declaration. We can help you with OSS registration. Contact us to ask for more information.
The thresholds that are currently valid in the EU will be abolished from 1 July 2021. Meaning, that for cross-border selling within the EU, you will start paying the VAT from the first sale.
OSS scheme can also be used by a business from the third country whose office is located outside of the EU and who doesn’t have a permanent establishment in the EU Member States. In that case, they have to have e-shop storage in one of the Member States from where they deliver goods to the end consumers in the EU.
However, there is a 10 000 € threshold that determines whether the company will pay VAT according to the rate of the seller’s or end consumer’s country. That applies to the distance sales within the EU Member States (all sales together) and digital services provided for the end customer.
Therefore, if the 10 000 € threshold is not exceeded, then the company will pay VAT according to the country of the seller. If the threshold is exceeded, then VAT rates of the end users’ Member State are applied.
What is IOSS for third countries that import goods to the EU?
The EU also introduces the Import One Stop Shop (IOSS) from 1 July 2021. That scheme aims to simplify the declaration of the low-value consignments imported from third countries to sell to the end consumers in the EU. The idea of IOSS is very similar to OSS. It means that a third country that imports goods to the EU will only register and pay for VAT upon the import of goods in one EU country, not in every country where the goods are sold.
Third countries are all the rest of the countries outside of the EU and EFTA (European Free Trade Association).
Here’s what you should know about VAT 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.
- IOSS scheme can be used for the goods which 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 can add 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.
- 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 fulfill the duties related to the IOSS scheme.
What about when you choose not to use the IOSS scheme? In that case, your customers will likely pay the VAT for the goods upon their arrival. 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.
VAT OSS does not apply to B2B cross-border sales
Keep in mind that distance selling thresholds do not apply for business-to-business (B2B) cross-border sales. When selling goods to a company in another country within the EU, VAT does not have to be included in the bill if the other company also has a valid EU VAT number.
If your customer doesn’t have a valid EU VAT number, then you should charge them the VAT applicable in your country.
What is the purpose of VAT OSS and who can benefit from it?
As the name One Stop Shop implies, OSS aims to make things easier for businesses. So instead of registering for and paying VAT in all the countries where the goods are sold you only have to do it in one country. That, in turn, helps to reduce VAT frauds and in combination with import OSS (IOSS) creates equal competition between the EU and third countries.
Therefore, this scheme is perfect for e-shops selling goods to the end consumers (B2C) in the EU countries by losing extra bureaucracy. Of course, you have to send your accountant the correct information about the sales revenues from each country and the respective tax rates. That will guarantee that the correct information will be submitted with the VAT OSS declaration.