With the EU VAT reform scheduled for July 1, 2021, e-commerce business owners who have cross-border transactions within the EU or who import goods from outside the EU will be impacted. A new VAT scheme will be introduced, called One-Stop-Shop (OSS), which will allow businesses to register for VAT in a single EU country and file their quarterly VAT returns there. There’s also another scheme, called Import One-Stop-Shop, which is specifically designed for imported goods.
In this article, we’ll look at both OSS and IOSS and see how it will affect online B2C businesses who have customers in the EU on your own website or platform. If you’re selling products via an online marketplace, the marketplace operator might be the one who’s responsible for collecting and remitting VAT.
What is the One-Stop-Shop (OSS) scheme and how will it work?
The One-Stop Shop (OSS) is an extension of the already existing Mini One-Stop-Shop (MOSS) model for VAT on some digital products in the EU. The goal of both is to simplify tax compliance and ease the administrative burden on businesses, while facilitating tax collection for governments.
If you use the OSS scheme, you’ll be able to register for VAT and file your VAT returns in a single country, via their OSS portal.
This greatly facilitates the record keeping and reporting process, if you have customers in multiple countries, as you’ll no longer need to keep tabs on different distance selling thresholds in different countries. Instead, a single pan-EU threshold of €10,000 will apply. (More on that later).
What’s the difference between OSS and IOSS?
OSS (One-Stop-Shop) is designed for companies based in the EU selling goods to customers in other EU countries.
IOSS (Import-One-Stop-Shop) is designed for non-EU companies who sell goods to customers in the EU, of a value of €150 or less. For goods of a higher value, standard VAT import rules apply.
Depending on your location, you’ll either need to use OSS or IOSS.
How do you choose which country to register in?
If you’re already established in a given EU country, simply register for OSS there.
If you don’t have any EU presence for the moment, you’ll need to register for IOSS. Opt for a country that:
- you speak the language of, and
- has a (relatively) simple and comprehensive VAT registration process and portal.
Once you register, you’ll file your quarterly VAT returns for all of your sales transactions in the EU in the same country.
Which VAT rate should you apply?
To calculate the correct VAT, you need to keep track of your total EU sales in all countries.
There’s a pan-EU threshold of €10,000. Under this amount, the VAT rules and rates of your country of origin apply; above it, you need to charge VAT at the rate of the destination country.
Each EU country has its own VAT rules and rates, so you’ll need to apply those to each transaction with a local customer. To know the location of each customer, you need to collect two or more pieces of evidence and keep them for 10 years. These might be:
- The customer’s billing address
- Their IP address location at the time of purchase
- The country in which their credit or debit card was issued
- The bank location
- The country of the SIM phone card operator.
You must provide an invoice to all your EU customers and charge VAT at the point of purchase.
How can Fonoa help?
The Fonoa Tax engine automatically determines the correct tax treatment for sales transactions anywhere in the world. After you provide minimal transaction data input, the tax engine will determine if the transaction is taxable, what tax rate applies, and the amount of tax that you need to charge for that transaction.
Reach out to our team to learn more about it.