E-COMMERCE: IOSS (VAT) REGISTRATION IN EUROPE
Following the adoption of the Council Directive (EU) 2017/2455 and different Implementing Regulations, the import VAT exemption on low value consignments not exceeding €22 EUR has been removed in the EU since July 1, 2021. One of the main goals of the new law was to put an end to the distortion of competition (as far as VAT is concerned) between EU based suppliers and non-EU suppliers.
As a consequence of the new rules, all the goods imported into the EU from a third country are now subject to value-added tax (VAT) no matter the value of the parcel. However, the exemption of customs duty is still applicable to parcels valued €150 EUR or less. In order to facilitate the collection, declaration and payment of EU VAT by non-EU online retailers selling their goods to customers based in the EU, a new VAT scheme called IOSS (Import One-Stop Shop) has been created.
What is IOSS (Import One-Stop Shop) VAT scheme?
The IOSS VAT scheme enables both EU and non-EU businesses making distance sales of imported goods to EU buyers to easily collect, declare and pay VAT to the tax authorities of the different countries of the European Union. The IOSS VAT scheme is applicable exclusively to consignments not exceeding €150 EUR. In this article, we will see how a non-EU seller can take advantage of this new VAT scheme to expand its international sales in the EU single market.
Example of a UK online retailer selling in France
A company based in the United Kingdom and selling low value goods on its own website receives from a French buyer an order of a total amount of £65 GBP (approx. €78 EUR) shipping cost included. The UK seller requests to its supplier in China to dispatch the package directly from a Chinese warehouse to the end consumer located in France (dropshipping technique). The UK seller has not yet opted for the IOSS VAT scheme.
Upon arrival at the French borders, the customs authorities charge VAT on the parcel because the goods are imported from a non-EU country. As a reminder, the standard VAT rate in France is 20%. The fast parcel operator handling the shipment agrees to advance the payment of this import tax to the French authorities in order to release the goods from the customs control.
From this point we have two possible scenarios:
- Either the fast parcel operator delivers the goods to the buyer and sends a bill to the UK seller corresponding to French import VAT and associated costs such as customs clearance fees. The UK seller may be unable to reclaim this French VAT because the customs declaration is not in its name (i.e. does not appear as the Importer of Record), but in the name of the buyer based in the EU.
- Or the fast parcel operator asks to the buyer to reimburse the import VAT and associated costs before the delivery of the parcel. It is usually a very bad experience for the buyer who was not expecting these hidden costs. The UK seller in this case will spend its precious time to handle complaints and sometimes negative reviews from unsatisfied customers.
Choosing the IOSS VAT simplification scheme
Still following the above example, since 1st July 2021, the same UK seller now has the possibility under the new law to opt for the VAT simplification scheme known as IOSS (Import One-Stop Shop). He will charge VAT to its EU based clients during the checkout process and the parcels will be subsequently delivered into the EU market free of import VAT and miscellaneous customs constraints.
Any non-EU company willing to take advantage of the IOSS VAT simplification scheme for its distance sales of imported goods to EU buyers should read carefully the following steps.
Step 1: Appoint an IOSS VAT intermediary
As a non-EU business, you will need in most cases to appoint an IOSS VAT intermediary based in the EU in order to be able to use the new scheme. The EU IOSS intermediary is the person who will handle your IOSS VAT registration in the European Union.
After the registration process in completed, the intermediary will also prepare and submit to the tax authorities of the Member State where you are registered a monthly IOSS VAT return for all your sales across the EU. He will also coordinate the payment of VAT owed to the tax authorities and will keep the records of your EU sales under the IOSS scheme.
Corintax® is an authorised IOSS VAT intermediary established in France and helping non-EU online retailers to stay VAT compliant when expanding their business into the EU single market.
Step 2: Apply for an IOSS VAT number
The appointed VAT intermediary will apply for an IOSS VAT number on your behalf. Although the application is submitted to the tax authorities of the place where the intermediary is located, the VAT number once issued will be valid for all your eligible IOSS distance sales of imported goods across the EU.
In France, the registration process for an IOSS VAT number takes about 1 week.
Step 3: Sell your products via your own website
We remind you that a non-EU business can use its personal IOSS VAT number only to carry out distance sales of imported goods to EU buyers through its own website (online shop) or any other channel that is not an Online Marketplace (OMP) facilitating the sales.
When preparing yourself to start selling your products to EU consumers through your own online shop, you will need to check the following points if you intend to use the IOSS VAT scheme:
- Make sure that your products are not excluded from the VAT scheme. For example, you cannot use the IOSS VAT scheme if you are selling products that are subject to excise duties;
- You should be selling predominantly low value products on your website. Remember that only parcels valued €150 EUR or less may fall under the IOSS VAT scheme. If your parcel value exceeds €150 EUR, import VAT will be charged at the border under the normal rules. A conversion with the correct exchange rate will be necessary when the prices are listed in a currency other than the Euro.
- When setting your prices on your website, you will also need to display the amount of VAT to be paid by the buyer based in the EU, at the latest at the end of the ordering process; You will also use the VAT rate (standard or reduced) that is applicable in the EU country where the parcel will be delivered (i.e. the Member State of final destination).
- All your low value parcels must be dispatched to EU buyers from a non-EU territory. If you already hold a stock or a warehouse in the EU and you fulfil your orders from that stock or warehouse, you cannot use the IOSS VAT scheme.
- Each time a parcel is sent out, make sure your IOSS VAT number accompanies it in order to avoid an additional import VAT charged upon arrival in the EU. For security reasons, your IOSS VAT number should be kept confidential and securely disclosed only to the transport company that will handle the customs clearance in the EU. It is not recommended to mention your IOSS number directly on the parcel or on the sales invoice.
When an Online Marketplace (OMP) is used to sell non-EU products to EU buyers, in most cases the platform will act as the “deemed supplier” responsible of the collection of VAT. The OMP will therefore deduct from the sales income its fees and VAT before paying the net amount to the external vendor.
Step 4: Submit and pay your IOSS VAT returns
A detailed report of all your eligible sales under IOSS VAT scheme should be sent at the end of each month to your IOSS intermediary. The latter will prepare and submit on your behalf a monthly electronic VAT return via the IOSS portal of the EU country where you have been registered for IOSS. For instance, if you got a French IOSS VAT number, your monthly VAT returns containing your IOSS sales in all the Member States of the European Union will be filed and paid exclusively in France.