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Europe’s new Value Added Tax – What is OSS and iOSS?

Introduction

These are some massive changes happening to the eCommerce VAT rules in European Union (sometimes known as the VAT e-Commerce package) that are not only impacting the sellers in the EU but also sellers outside the EU where buyers are from the EU. We are going to discuss basic fundamentals of what’s happening and what you need to be prepared for. Note – VAT can be a tricky subject so ensure you speak to qualified experts based on your business needs.

Let’s understand what is changed from 1st of July 2021

What is Union and Non-Union VAT Scheme?

One-Stop Shop (OSS)

In summary, as a seller, you will be charging VAT to your buyers based on the VAT rates of the country where you are sending the products to your buyers. Eventually, VAT is required to be paid to the country.

So as a seller, if you have sold to buyers in France and Germany then you will be paying VAT to those countries. One way is to register for VAT in those countries and submit the return and pay the VAT. But that’s the overhead, especially for small to medium eCommerce sellers who want to sell to all the European countries but do not have enough revenue for this extra overhead of accountings costs.

So that’s where the new regulation simplified the whole process and instead of registering VAT in all the countries, you will register for VAT in a company registered country. And you will just submit and pay the VAT to that country and it will be responsible to distribute the VAT to other EU countries.

So, effectively you sell freely to all the buyers in the EU and pay VAT in your registered country for all the sales without worrying about registering for VAT in other countries.

That’s known as One Stop Shop (OSS) VAT.

There is absolutely no VAT advantage of choosing any specific European country so choose which is closest to you.

Steps from register till VAT payment

To use the OSS, you register your company register in any one of the European countries also technically known as the Member States. Say, your company chooses Luxembourg as the Member state

  • Your Brands sells to customers in other European countries
  • Then your company makes an OSS quarterly VAT Return to Luxembourg. Well, you will ask your accountant to do that but they will give details of the total tax to be paid to each European country where you have sold your products.
  • Your chosen country (here it is Luxembourg) will provide the OSS VAT Return information to other European countries where you have sold your products
  • Your company then pays the VAT to Luxembourg
  • And finally, Luxembourg distributes the VAT to each European country.

If you are selling from UK or any country outside European Union and selling to customers in European country, then you will need to register for OSS VAT in one of the European country and that's it. This only applies when your products are within the European Union country and delivered to buyers within the European Union.

What is iOSS (import One Stop Shop) – Import Scheme
What if your company sells to the customer in the European Union but you are sending that product outside the EU. Say you have a warehouse in Birmingham, England and you ship your product to a customer in France.

Whenever any product comes from a country outside the EU, VAT applies when the product reaches customs and the customer has to pay the VAT. This is painful to customers with all the surprise extra costs and delays the delivery.
 
So, here is the solution – As long as the product sold is not more than EUR 150, your company can register for iOSS and charge the VAT from the buyers. When shipping the product to the customer, you give your iOSS number and that will allow the product goes without any delay in customs (specific to payments).

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If you selling on Amazon or any other marketplace If you are selling via Amazon and Amazon is shipping the products from outside EU to customers in EU then you will need to supply iOSS number to Amazon.

Summary

For all sellers outside the EU and sending the products from outside the EU to EU customers, get your iOSS registration done. If you don’t have the iOSS number and charging VAT to EU buyers then those customers may be liable to pay double tax one from your shopping cart and another during the customs import process if you do not provide iOSS during shipping.

Taxation is slightly technical and I suggest getting the right consultation. Don't think of finding the loopholes but try to find the right way to give a good experience to your buyers and also find the tax efficiency.

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