The European Commission’s latest value-added tax (VAT) regulations for online sellers and marketplaces amount to countless pages of legislation, which could take a good deal of time to review, digest, and implement. If your e-commerce business-to-consumer (B2C) organisation is still trying to keep pace with the July 2021 changes, we have compiled a list of the 20 most relevant EU VAT One-Stop Shop (OSS) FAQs for you. We’ve pulled information from our blogs, webinars, white paper, and other resources to keep you “in the know” for your VAT compliance obligations.
What the new rules entail and whom they impact
1. Why were the new EU VAT rules created?
With the rise of e-commerce, and further acceleration provided by the recent pandemic, the EU VAT rules introduced in July 2021 were put into place for several reasons. The new regulations were not only designed to simplify VAT returns for online sellers and marketplaces, but also to provide fair competition for EU businesses and deliver transparency to EU shoppers. More importantly, the recent legislation is intended to reduce approximately €7 billion worth of annual VAT fraud.
2. Who is affected by the new 2021 EU VAT rules?
The 2021 VAT rules impact the entire transaction supply chain, including sellers, sales and payment platforms, postal and freight operators, couriers, consumers, customers, customs administrations, and tax authorities.
3. What are some of the new EU VAT rules?
As of 1 July 2021, when the new EU VAT e-commerce legislation became effective, the following principles have been applicable:
- The rules now include the sale of goods to consumers within the 27 European member states — this expands the previous 2015 VAT regulations limited to telecommunications, broadcasting, and electronic services (TBE services)
- European VAT charges will be applied to all online sales
- The distance sales limit to all EU countries is now €10,000 net, significantly lower than the €35,000 to €100,000 thresholds available before the latest rules were put in place. This threshold also applies to B2C supplies of TBE services.
- VAT should be included in the price that consumers pay when they purchase goods from a non-EU online retailer that is registered with the new Import One-Stop Shop (IOSS)
- Distance sales: The introduction of the Union OSS gives EU-established distance sellers the option of declaring all distances sales made with member states on a single VAT return, in one single member state. Previously, when a member state’s distance sales threshold was surpassed, a VAT registration was necessary for each of those jurisdictions. It also brought with it the additional obligations, similar to those of the domestic resident VAT registered business, that would have added significantly to the cost and efforts of remaining VAT compliant.
- B2C services: EU-established suppliers of B2C services have the option to declare all EU supplies of B2C services on the Union OSS VAT return, in one single member state
Non-EU established supplier / importer
- Distance sales of goods: The introduction of the Non-Union OSS gives non-EU established distance sellers the option of declaring all distances sales made with member states on a single VAT return, in one single member state. Previously, if a member state’s distance sales threshold was surpassed, a VAT registration was necessary for each of those jurisdictions.
- B2C services: Non-EU established suppliers of B2C services can declare all EU supplies of B2C services on the Non-Union OSS VAT Return, in one single member state
- Import VAT: VAT incurred on goods imported from outside the EU valued at less than €150 can be invoiced to the customer. VAT incurred can be reported and paid through a single return via the IOSS
- Import VAT: The import VAT exemption for goods valued at less than €22 has been eliminated
- Import VAT: Postal and freight operators have the option to declare and pay the import VAT relating to certain goods whose value is less than €150. This is referred to as “special measures.”
Electronic interfaces / online marketplaces
- Every EU and non-EU based e-commerce business — online sellers and marketplaces — that sell goods and services to an EU customer, regardless of their value, needs to calculate, track, collect, report, and pay VAT on those transactions
- Online marketplaces that facilitate suppliers selling goods into the EU are responsible for collecting, reporting, and paying VAT from consumers as they become “deemed suppliers” for the transactions
- Online retailers now have the option to register in one EU member state, such as their home country, then pay VAT for sales throughout the EU instead of having to pay individual tax authorities — these latest reforms intend to simplify the VAT remittance process
- Additional VAT record-keeping requirements have also been introduced
4. What e-commerce goods and services are impacted by the new VAT rules?
The new VAT rules impact the sale of all B2C goods and services within EU member states by non-EU established online sellers. The distance sales of mail order, telesales, or online goods from EU suppliers in one country to non-VAT registered customers in another EU country are also affected, as are some domestic goods sold online under certain conditions.
5. What are some of the new EU VAT rules for B2C e-commerce goods and services?
VAT is applied to all goods and services, regardless of their commercial value. In addition:
- VAT must now be paid in the EU member state that goods, ranging from €0 to €150, will be delivered
- EU-established suppliers of distance sales or B2C telecommunications, broadcasting, and entertainment services are affected by the EU-wide threshold of €10
- Imported goods and services valued at €150 or more into the EU are subject to customs duties
6. Can online sellers pay VAT to only one EU member state?
Yes and no. Although the OSS simplifies the VAT reporting and payment process for products destined for EU customers, VAT rates for the same items and services differ in each EU member state. Therefore, e-commerce businesses must comply with the “destination principle” by tracking and applying the varying VAT rates where the goods and services will be consumed.
Because of the new EU VAT rules and OSS scheme, non-EU businesses have the option to register, report, and pay one consolidated VAT to a single member state. The tax authority of that EU member state will then distribute the VAT payments and data to each of the relevant countries. However, tax payers may receive tax audit requests, payment delay warnings, or error notifications, from any or all EU member state tax authorities.
Benefits and challenges created by the EU VAT rules
7. How do the 2021 EU VAT rules benefit e-commerce businesses?
The new regulations provide a more simplistic and streamlined VAT process for B2C e-commerce businesses with customers in the EU.
8. How do the new EU VAT rules affect EU shoppers?
Overall, EU shoppers benefit from greater product choices and better customer experiences. Furthermore, there is price transparency and accuracy — which were practically nonexistent prior to the recent changes — because VAT is now paid during the checkout process on online products from non-EU retailers. In the past, customs or courier services collected VAT separately from EU shoppers if the online sellers didn’t add VAT to the total sale or undercalculated the taxes.
9. Why do the new reforms create OSS VAT compliance challenges for online sellers and marketplaces?
Although the OSS was designed to simplify and streamline VAT remittances, the complexity of the new EU VAT rules creates a myriad of tax compliance challenges and requires companies to think carefully about their operations and how they implement digital tax reporting. For instance:
- Each of the 27 EU member states may have different VAT rates for the same goods or services supplied
- Reporting processes and digital filing formats are not standardised throughout the EU — some countries insist on CSV documents, while others require XML submissions
- Non-EU established online sellers may require assistance from a fiscal representative to act on their behalf in the member state of IOSS or Non-Union OSS registration
VAT rules and rates throughout the EU
10. Are the EU VAT rules the same within each of the 27 member states?
No. Digital filing formats, e-commerce regulations, along with registration and submission processes, differ among EU member states and may be modified at any time.
11. Are VAT rates the same for each EU country?
No. Rates differ because the tax authority for each EU member state sets its own VAT rate, which ranges from 0% to 27% on goods and services. Also, depending on the sale of certain types of products or services, EU countries offer varied reduced rates or VAT exemptions.
If your customers are in multiple EU member states, you’ll need to calculate and remit the correct VAT for each country and goods classification. However, you can use the IOSS form to remit one VAT return for all EU member states on imported goods transactions valued up to €150.
An overview of the One-Stop Shop and Import One-Stop Shop
12. What is the OSS for VAT?
The OSS is an online B2C reporting and payment platform that allows online sellers to file a single VAT return to report sales in multiple EU member states. The online portal, which made its debut in July 2021 as the cornerstone of the EU VAT changes, was devised to simplify the e-commerce VAT return process. Its use is optional — businesses can still register, calculate, file, and pay VAT in each EU member state they sell goods and services to. Domestic VAT returns must be filed separately.
Rather than having to deal directly with every EU country in which they have consumers, online retailers have the option to register with one country’s VAT OSS, which is then responsible for distributing the reported VAT to the respective member state tax authorities. Furthermore, the new regulations are advantageous to distance-selling companies that deliver their goods from a single, centrally located distribution center to EU consumers.
13. How many types of OSS VAT returns are there?
The OSS scheme consists of three VAT returns, based on the types of transactions and the locations of the online sellers — some e-commerce businesses may need to file more than one type of OSS VAT return:
- Union OSS applies to EU-based sellers and all kinds of electronic B2C services, distance sales of goods within the EU, and certain domestic online sales
- Non-Union OSS is for non-EU based sellers to report their B2C sales of goods and services to EU customers including:
- Admission to cultural, artistic, sporting, scientific, educational, entertainment, or similar events
- Transport services and ancillary transport activities such as loading, unloading, handling, or similar activities
- Supply of restaurant and catering services for consumption on board ships, aircraft, and trains
- Import OSS (IOSS) is reserved for the sale of imported goods, valued up to €150, to EU customers
14. What is the difference between OSS and IOSS?
Although the OSS and IOSS are alike, they are dissimilar. The OSS is an online portal and digital tax reporting system with three types of OSS VAT forms, whereas IOSS is one of the three OSS forms. IOSS is exclusively used to report VAT on imported goods transactions valued up to €150 to EU customers.
15. Are e-commerce businesses required to use the OSS to file VAT returns?
No. OSS VAT registration and reporting is optional. Online sellers can still collect, report, and remit VAT directly to each of the 27 EU member state tax authorities.
Basic details on using the OSS
16. When and how do e-commerce businesses register for the OSS?
To register for the OSS, an online application can be submitted to the tax authority of the member state your organisation is most familiar with, shares a common language with, or holds stock in a warehouse in that country. EU businesses can simply register with their home country’s tax authority to take advantage of the OSS system.
After the application is submitted, it will become effective during the beginning of the next quarter. Once a business is registered for the OSS, it must use the applicable OSS return(s) for all B2C sales to EU shoppers.
17. How often must OSS VAT returns be filed and paid?
VAT returns and payments for the Union OSS and Non-Union OSS are submitted at the end of every quarter (by the last day of the following month) to their EU member state of registration, whereas IOSS VAT remittances are monthly (by the last day of the month following the reporting period):
- Q1 OSS returns for January through March are due by 30 April
- Q2 OSS returns for April through June are due by 31 July
- Q3 OSS returns for July through September are due by 31 October
- Q4 OSS returns for October through December are due by 31 January of the next year
- IOSS returns for January are due by 28 February, February’s return is due by 31 March, and so on every month
18. What are the penalties for late OSS returns or payments?
It’s difficult to determine penalties since they vary from one infraction to another and differ among each country. Your OSS registration’s tax authority will typically send a reminder 10 days after the VAT return due date. Specific member states of consumption will then relay additional reminders, as well as assess penalties. Afterwards, payments must be paid directly to each relevant member state, versus the country of your OSS registration.
19. How long must online sellers maintain records for OSS sales?
OSS sales records must be maintained for 10 years.
20. Will I need to use an intermediary?
Yes, but only if your e-commerce business is non-EU based, imports goods and services to EU customers, and needs to register for and file an IOSS VAT return. You may be advised to hire an EU-based intermediary (also known as a fiscal representative or VAT agent) to register your organisation for the IOSS or Non-Union OSS, as well as file returns and submit VAT payments on your behalf.
Eager for more information on the new EU VAT rules and VAT compliance? Explore our list of free resources to get a grip on the new regulations:
- Resource: What are the new EU VAT rules and how do they impact e-commerce businesses?
- Special report: How the new One-Stop Shop EU VAT rules affect e-commerce
- Blog: Overcome the new One-Stop Shop’s challenges and unlock its opportunities
- Webinar: Demystifying the EU’s eCommerce 2021 VAT reforms: Practical steps to compliance
- Blog: Demystifying the 2021 EU’s Value-Added Tax
- Webinar: Are you prepared for compliance with the latest EU VAT regulations?
- Blog: Is your e-commerce business ready for the new Import One-Stop Shop EU VAT rules? Tips for tax compliance