As eCommerce continues to grow globally, businesses looking to sell to European Union (EU) customers must navigate a complex set of VAT (Value Added Tax) requirements.
Recent reforms introduced by the EU have aimed to simplify VAT compliance for cross-border eCommerce. They have introduced two new systems: the Import One-Stop Shop (IOSS) and the One-Stop Shop (OSS). These initiatives were created to help businesses manage VAT obligations more efficiently, but understanding how to apply them can be challenging. Our guide breaks down the essentials of IOSS and OSS for companies expanding into the EU market.
The Basics of VAT for eCommerce
VAT is a consumption tax applied on goods and services in countries within the EU and beyond. The rate varies by country but typically ranges between 17% and 27%.
Unlike the U.S. sales tax system, VAT is charged at each stage of the supply chain, but the ultimate tax burden is passed to the end consumer. International businesses selling to customers in other countries must often register for VAT, collect it at the point of sale, and remit it to the local tax authorities.
If you’re an eCommerce business accepting orders from abroad, it’s likely you will need to comply with VAT regulations. First, you need to understand where and when VAT must be collected, given the rules and rates can vary from country to country. To streamline this process, the EU introduced IOSS and OSS.
What is the Import One-Stop Shop (IOSS)?
IOSS is an EU VAT compliance system. It simplifies VAT collection for businesses selling goods worth €150 or less directly to EU consumers from outside the EU. It was implemented in July 2021 to make VAT collection more straightforward for non-EU sellers and to reduce the burden of import tax.
Key Aspects of IOSS
- IOSS applies to most goods valued at €150 or less. It does not apply to excise goods like alcohol and tobacco.
- Sellers collect VAT at the point of sale, applying the rate of the buyer’s EU country.
- Businesses can register for IOSS in one EU member state, which allows them to remit VAT across the entire EU.
- By using IOSS, the goods are VAT-paid upon arrival. This means your customers avoid additional customs charges and delivery is more efficient.
How to Register for IOSS
For non-EU businesses, registration for IOSS typically requires appointing an EU-based intermediary or global tax expert. This professional handles VAT registration and compliance tasks on your behalf.
Benefits of Using IOSS
- You only need to register once and file one monthly VAT return. This makes compliance easier for sellers shipping low-value goods to multiple EU countries.
- VAT-paid shipments protect your customers from unexpected charges and improve their experience with your business.
When Not to Use IOSS
IOSS is only suitable for low-value goods shipped directly to EU consumers. If goods exceed €150, regular VAT and customs rules apply, and IOSS cannot be used.
What is the One-Stop Shop (OSS)?
OSS is an umbrella EU VAT scheme aimed at simplifying VAT collection for cross-border sales within the EU. Unlike IOSS, which applies to imports, OSS is designed for sales of goods and services from one EU country to another. (This can apply to international businesses if you’re shipping goods from another EU member state or selling digital products.)
The OSS scheme replaced MOSS in July, 2021. It covers the non-Union scheme, the Union scheme and the import scheme (IOSS).
Key Features of OSS
- OSS applies to digital services and goods supplied from one EU member state to another.
- Sellers can register for VAT in one EU country and collect VAT for all sales made to EU consumers.
- Instead of multiple VAT returns in each country where sales occur, sellers can submit one quarterly VAT return via their OSS registration.
“OSS can make life a lot easier for non-EU companies selling digital services (like software, online courses, or streaming services) to EU consumers.” – Gareth Kobrin, Global Tax Expert
How to Register for OSS
To use OSS as a non-EU business, you must register in one EU country. You can then manage all your EU VAT obligations for eligible sales via this country’s tax authority. OSS registration eliminates the need to maintain separate VAT registrations in each EU country where sales occur.
When to Use IOSS vs. OSS
The key difference between IOSS and OSS is the type of sales they apply to:
- Use IOSS for imports of low-value goods (under €150) shipped directly to EU consumers.
- Use OSS for cross-border sales of digital services or goods supplied within the EU.
Steps to Implement IOSS and OSS
- Determine Which Scheme(s) Apply: Analyze your business model to see if you need IOSS (for imports) or OSS (for cross-border EU sales).
- Appoint an EU Intermediary (if required): For IOSS registration, U.S. companies need an EU-based intermediary to manage VAT registration and filing.
- Register for IOSS or OSS: Complete the necessary registration in one EU country and confirm your compliance requirements.
- Update your Automated Tax System: Update your sales tax software and ensure you’re collecting the correct rate of VAT based on the customer’s location.
- File VAT Returns Regularly: Submit IOSS returns monthly and OSS returns quarterly to the EU country you’re registered in.
Benefits of Using IOSS and OSS
By taking advantage of IOSS and OSS, your businesses can:
- Simplify VAT Compliance: Both systems offer one-stop registration and reporting for EU-wide sales.
- Improve the Customer Experience: Pre-paid VAT and streamlined shipping reduce customs delays and unexpected charges.
- Grow Your EU Market Presence: Compliance with VAT requirements builds trust and allows you to focus on market expansion rather than tax admin.
Conclusion
Understanding and implementing IOSS and OSS can be a game-changer for eCommerce companies targeting the EU.
By registering for the appropriate scheme, your business can streamline VAT collection, improve customer satisfaction, and reduce the complexity of cross-border sales. Stay updated on EU VAT requirements to help your business grow and succeed in this valuable market.
Yonda Tax automates your sales tax process and provides you with a sales tax wingman to ensure you’re compliant with global regulations. Contact us to get started.
The information in this article is true to the best of our knowledge at the time of writing, but sales tax regulations can change very quickly. You should always consult a tax professional for legal advice.