Now that your business is VAT registered, you need to keep compliant with EU VAT regulations. Starting 1 July 2021, all businesses dealing with EU customers will have an option to use the OSS or the IOSS [link to OSS/IOSS article] for EU VAT compliance.
VAT Compliance Europe for EU Sellers
EU businesses are presented with the OSS scheme, where VAT on intra-community sales of goods and services are reported. Intra-community means an EU business selling to an individual consumer who is in another EU country.
Through the OSS, the seller will charge destination VAT (the VAT rate in the customer’s country) but report and pay that VAT in the country where he (the seller) is registered at. OSS returns are reported quarterly on the last day of the month, and payments are due one calendar month later.
This scheme is a big convenience as opposed to the old system where a seller has to have a VAT registration in every country where he hits the distance selling limit threshold, and consequently, report the appropriate VAT to the concerned member state. With the OSS, the system where there were multiple forms and multiple tax authorities to deal with is eliminated.
EU sellers who breach a threshold of €10,000 in total intra-community sales may file their OSS returns. EU companies that sell products above €150 will file foreign VAT returns reporting local sales and the movement of stocks within the EU.
VAT COMPLIANCE, You do Business we do TAX!
EU VAT Compliance for Non-EU Sellers
As a non-EU seller, you have three options for EU VAT compliance. Let’s use these scenarios:
Option 1: What will happen if I don’t register for the IOSS scheme?
In one of our earlier posts, we discussed the possibility of non-EU businesses not signing up for the IOSS scheme. Instead, you can have a ‘special arrangement’ with your courier by having them collect VAT when your goods arrive in-country. This arrangement is according to Incoterms or international shipping rules. Through these, the courier can either collect VAT from your shipping account or collect VAT from the customer upon delivery.
The latter (collecting from the customer on delivery) is called DDU or delivery duty unpaid. This scenario is when VAT is not included during the sale at checkout. The courier or customs will contact the buyer to ask for import VAT. The buyer acts as the importer on record and deals with the paperwork. Only then will he receive what he bought overseas.
However, these same couriers would encourage you to register for the IOSS instead so you can charge your customers VAT. They’d have less paperwork to review, and your package will be greenlighted, resulting in faster delivery.
Without a seller’s IOSS registration, packages like these would most probably accumulate at warehouses at the point of entry to the EU, awaiting responses from customers whether they are willing to pay for VAT or not.
Don’t be surprised, too, if some smaller carriers will no longer accept DDU shipments as they will be avoiding this administrative burden of knocking on customers’ doors asking for DDU payment.
Option 2: Can I still collect VAT at checkout even without registering for the IOSS scheme?
You may already be doing this if you’re registered for VAT.
You can collect VAT at checkout. The package will be sent as ‘Bill Third Party for Duties and Taxes’ (DTP/DDP). With this code, you may be charged by the courier a surcharge amount.
You, the seller, will act as the importer of records. It will appear then that after you imported the product, you sold this to your end customer, charging him destination VAT.
Unfortunately, you will have to register for VAT in all EU countries you sell to if you aren’t already.
Option 3: What if I use the IOSS scheme?
The IOSS scheme [link to OSS/IOSS article] is not mandatory, but once you register for it, you have to run all your qualified (that is, less than €150 transactions) through it.
You will collect VAT as your customer pays this at checkout.
You will then need to put your IOSS VAT number on the package paperwork (on the Sender Tax ID field). When your package arrives at the point of entry, customs will see your IOSS number and would no longer have to charge your customer DDP (disbursement advancement) fees for it. They will deliver the package as if it were a domestic shipment.
On the month following the transaction, you will remit that VAT that you collected to the country (or through your local tax representative) where you registered your IOSS in. IOSS returns are reported monthly on the last day of the month, and payments are due one calendar month later.
The IOSS, therefore, makes VAT compliance easy on top of giving your customers a better, less hassle experience.
This is for goods below €150 only. For items priced above €150, the old rules apply.
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UK VAT REGISTRATION AND BREXIT VAT CHANGES 2021
The Role of Marketplaces
The EU now deems online marketplaces as suppliers when either of these conditions is satisfied:
- the supplier is outside the EU;
- or the goods are valued below €150 and come from outside the EU.
These include platforms such as Amazon, eBay, Etsy, Aliexpress, and Wish.
Since Amazon specifically promised its users that it would take care of collecting VAT, OSS or IOSS returns would not be required of its sellers. The reason is that Amazon will be including your transactions in its own OSS or IOSS.
However, being in the pan-EU or Amazon FBA program means that you are using Amazon’s logistics to qualify for Amazon Prime. This implies that you held VAT registration numbers for all the countries where your stock is warehoused. You will need to keep those VAT registrations as you will need them for this type of program.
An EU company, for example, selling products below €150 through the Amazon FBA program to customers in the EU would need to determine if he exceeds the €10,000 threshold. If he does, he will need to file an OSS return which will contain VAT out of B2C sales to those EU countries. The OSS return should also include sales from the country of the EU Amazon warehouse to another EU country.
VAT Payments
VAT payments are done through a single online bank transfer to the tax authorities. You will be given a unique reference number per transaction.
If you are due any penalties, they will be assessed by the country of consumption. This situation may become complicated if you don’t have a local tax representative who speaks the language and understands your stand in the matter.
Munshian Ltd Simplifies EU VAT Compliance
Munshian Ltd helps e-commerce business owners record their transactions accurately. A monthly VAT report is no joke especially for bigger businesses with hundreds of transactions per month. You will need a skilled VAT accountant to handle all these, plus the navigation throughout all of the EU VAT rules.
Munshian makes sure your records are updated and in order through its detail-oriented EU VAT compliance services.
We have precise EU VAT compliance checking and recording through our methodological approach, utilizing the latest in accounting technology. We also have knowledgeable, high-performing staff whose goal is to inform, educate, and collaborate with you. The result is nothing but transparent, honest service.
Our in-house panel of VAT compliance specialists can tackle all phases of requirements for a diverse range of businesses. We handle registration and VAT compliance services, filing of returns, and local representation in member states where it is necessary. We are very experienced in dealing with local tax authorities.
And lastly, but just as important, you can get in touch with us easily. We are available through phone, email, chat, or through our online contact form at our website.
Don’t get bogged down with day-to-day administrative tasks. Give the hard work over to Munshian’s EU VAT compliance specialists and experience stress-free success.
