B2C dropshipping businesses who sell to EU customers need to adapt to the EU VAT reform that has been introduced on July 1, 2021.
In fact, prior to the reform, non-EU dropshipping businesses, and especially those who sold low-value items (of less than €22) had a competitive advantage over EU businesses. One of the goals of the reform is to give both non-EU and EU businesses similar conditions, by giving them the same VAT obligations.
In this article, we’ll look into how dropshipping businesses are affected, and what they should do to stay VAT-compliant in the EU.
What has changed for dropshippers since July 1, 2021?
There are a number of things that have changed:
- Goods of a value of less than €22 are no longer VAT-exempt. All goods sold to EU customers are now subject to VAT, regardless of their value.
- Imported goods of a value of under €150 are subject to VAT and you can use the IOSS (Import-One-Stop-Shop) system. Above that amount, both import duties and VAT are due, and standard import procedures apply.
- Dropshippers who are using EU inventories can use the OSS (One-Stop-Shop) scheme. If you’re doing cross-border sales in the EU, you can register for OSS, regardless of whether you’re established in the EU.
- Both the IOSS and the OSS system allow you to file a single VAT return for all your EU sales. EU member states’ tax offices will then exchange information on amounts due, and distribute VAT income.
- A single €10,000 pan-EU threshold will apply. Under it, EU sellers need to charge the VAT rate of their home country. Above that limit, they need to apply the VAT rate of the destination country. Either way, you need to charge VAT.
- eCommerce businesses will now need to charge VAT at the point of sale. Customers will no longer need to pay VAT themselves on import.
- Online marketplaces will be liable for VAT on items of less than €150. Instead of sellers, online marketplaces will need to charge VAT on some B2C transactions.
Do you need to register for IOSS or for OSS as a dropshipper?
There are two different ways to account for VAT on EU B2C sales: the IOSS (Import-One-Stop-Shop) and the OSS (One-Stop-Shop) system. Which one should you use?
This depends on whether you’re importing goods or whether your inventory is in the EU (and not on where your business is established).
The IOSS scheme is for you if: you’re selling goods of a value under €150 and, at the time of sale, your inventory is outside of the EU. For goods of a value of over €150, standard import procedures apply.
The OSS scheme is for you if: you’re selling goods from one EU country to another, i.e. if your inventories are in the EU and you’re selling to EU customers.
Additionally, you might need to keep your local EU VAT registrations in the countries where you have inventory.
If you have both EU and non-EU inventories, you might need to register for both.