The New EU Tax Regulations: What OSS and IOSS means for your store --
On July 1, 2021, new EU tax laws will be brought into play in the event that the European Union (EU) Value-Added Tax (VAT) eCommerce tax package takes effect. These changes represent a significant revision of the current tax laws that are designed to streamline processes and administration for merchants. The changes will affect virtually all business-to-consumer (B2C) company engaged in cross-border eCommerce (often called "distance sellers") that are in EU.
EU merchants who have crossed a new threshold for the EU that is EUR10,000.00 are required to be registered for registration in every one of the EU countries where they make tax-deductible sales to consumers from businesses. They can opt to do so via the recently-created One Stop Shop (OSS) system within their country. It allows online merchants to file one VAT return across all the EU and make just one tax payment that is distributed throughout the nations where they sell.
We've listed a few of the most significant changes below. We always recommend seeking out a tax expert in order to ensure that your business is following regulations as well as best practices.
Who will be impacted?
The EU VAT eCommerce package impacts EU merchants above an European-wide limit of EUR10,000.00 as well as non-EU retailers import goods into the EU.
Merchants are able to utilize the One Stop Shop (OSS) file system, which allows them to file a single VAT return for all countries in the EU as well as separately submit a VAT return for every EU destination that they deliver to.
The tax rate for VAT differs from country to country and ranges from 17% in Luxembourg to 27% within Hungary ( see the entire list of rates) Therefore, merchants will want to charge the VAT rate applicable to the country of delivery for orders within the EU. This includes orders shipped via a fulfillment center within the EU to any location within the EU.
What's changing?
What is it and how does it work:
The current distance selling scheme permits businesses to not register with VAT authorities in countries where they sell B2C tax-deductible supplies as provided that the value of those supplies doesn't over the threshold of distance selling in a given year. Companies apply their tax rates local to those sales as if the products sold never left their home country. If the threshold is reached in a given country it is required to sign up and file VAT returns and charge the local tax rate for the jurisdiction of registration B2C sales.
We will consider a German business that is selling physical products to customers in Romania. Until the German company reaches the annual limit of Romanian revenue of EUR25,305.00 The sales of the company are taxable in Germany and are subject to the standard German VAT rate of 19 percent.
Once the threshold is crossed, starting from EUR25,306.00 The Romanian sales will be taxed within Romania and must be registered and pay the Romanian normal VAT rate of 19 1 %.
How will it work after changes take effect:
The 1st of July marks the day that deadlines for selling on the internet in specific nations will be eliminated as well as a brand new European-wide threshold of EUR10,000.00 will be introduced. After the threshold is reached, a business will still be required to sign up in the countries where they make taxable B2C products, however they may choose to make this registration through the new One Stop Shop system in their own country.
It will permit eCommerce retailers to file one VAT return across the entire EU and make a single tax payment distributed amongst those countries in which they supply. In a way, this program will work as a continuation of the current mini One Stop Shop (MOSS) scheme which is accessible to online service companies.
Thus, it's the German physical goods seller who makes B2C taxable supplies towards Romanian, Czech, and Polish private customers, would not need to register in these three countries. If they meet the threshold for EU-wide registration the company will be able to register OSS in Germany, file one return, and make one tax payment (instead instead of 3). However, their domestic German B2C transactions will have to be recorded on their tax return for the local area in addition to a local VAT will need to be paid.
What are the options for sellers from outside within EU? EU?
The VAT exemption granted for the importation of goods of the amount of not more than EUR22.00 will be removed. In the end, every item imported into the EU will be subject to VAT. The non-EU seller has a nonexistent registration requirement, which means that they must register the first B2C sale.
To make VAT compliance easier for non-EU sellers, the Import One Stop Shop (IOSS)will be established. IOSS will allow single submission of returns to merchants that decide to charge VAT at the time of sale on consignments below EUR150.00. If a business chooses not to register for the IOSS VAT, it will be paid by the customer upon importing products from the EU. Goods valued in excess of EUR150.00 will be charged VAT upon arrival.
IOSS will also impact customs clearance with the potential to process imported goods faster. With some shipping providers where VAT was assessed at the point of sale, then the seller can indicate the IOSS number in the Commercial Invoice data to the shipping company to declare customs.
Information for merchants that is useful
To learn more about updating your tax settings visit our documentation.
When making changes to your tax settings we strongly recommend contacting an expert in tax to make sure the regulations are met.