Value-added tax (VAT) is a consumption tax on the sale of goods and services. Most countries charge VAT, including countries in the European Union (EU). In fact, the EU set a standard minimum VAT rate of 15% for member countries, although actual VAT rates in the 27 EU countries range from 17% to 27%.
All businesses that sell goods in the EU must collect VAT, even businesses that are not established in the EU. This can be complicated because EU countries have different VAT rules and VAT rates. So the European Commission attempted to simplify compliance by creating the Import One-Stop Shop (IOSS).
What is the Import One-Stop Shop?
The IOSS was introduced on July 1, 2021, as part of the Commerce Package. It created a simplified VAT reporting model for companies that are shipping goods with a consignment value below €150.
This introduction happened after the EU eliminated the VAT exemption, which had applied to goods with a value below €22. After the change, VAT was changed on all imports to the EU, and the IOSS made it easier for overseas sellers to pay VAT on goods with a value below €150.
Under the IOSS:
- Overseas sellers can centralize the declaration and payment of VAT for imported goods valued at less than €150.
- VAT is charged to the buyer at the time of purchase, so there are no surprise fees when goods are delivered.
- The EU country to which the goods are being delivered determines the VAT rate that applies.
Businesses are not required to register for the IOSS. However, if they don't register and don't use another type of prepaid customs solution, then their customers within the EU will be required to pay import taxes and duties upon delivery of the goods.
Who can use the Import One-Stop Shop?
The IOSS can be used by:
- Suppliers who are established in the EU and who deliver goods from non-EU countries. These suppliers can directly register for the IOSS in their member state.
- Non-EU suppliers, who must appoint an EU-established intermediary in order to take advantage of the IOSS.
- Online marketplaces that act as deemed suppliers and that are responsible for collecting VAT for sellers on their platforms.
The goods in question must be located outside of the EU when they are sold, they must not be subject to excise duties, and they must be delivered directly to consumers. They also must be dispatched in consignments with an intrinsic value of less than €150.
Unfortunately, the IOSS does not cover the shipment of goods with a value above €150, so you will need to use a different model for VAT collection when you are involved in higher-value transactions.
If you register for the IOSS, all eligible transactions must be reported through it. You cannot use other models on some transactions and the IOSS on others.
Getting started with IOSS
Companies that want to participate in the IOSS are required to register on the IOSS portal. They must obtain an EU VAT number, choose a member state to register in, and select an intermediary if they aren't established in the EU.
Once they’re registered, they can utilize the IOSS portal to declare VAT that is due and to pay VAT they owe. If they sell goods valued at less than €150, they can collect the VAT from their customers at the point of sale, simplifying the customs process and making it faster and easier for items to clear customs.
Companies must display the amount of VAT paid by the time the ordering process is finalized, and they must provide an invoice showing the price the buyer paid, in euros. Both the IOSS number and the invoice must be displayed during the customs declaration process.
Participating companies must submit an IOSS VAT return monthly through the portal. They can use the portal to pay the VAT they owe on all goods or services sold throughout the EU. They can make one payment through the portal for all the VAT they collect. The money is then distributed to the relevant member states.
What are the benefits?
The IOSS has significant benefits for eligible businesses, including:
- Simpler VAT compliance: You can register in a single EU member state, file just one report, and remit all import VAT due in one payment using the convenient online portal.
- Faster customs clearance: When a business uses the IOSS, customs does not collect any import VAT at the point of entry. This can allow goods to pass through customs more quickly.
- Better customer experience: Customers are informed of the VAT due during their transaction, and they pay the tax as part of the sale rather than having to make a separate, potentially unexpected, payment upon delivery.
- Avoidance of penalties and fines for noncompliance. Since the IOSS simplifies the process of complying with VAT obligations, companies are less likely to face fees and penalties for failing to pay the required taxes they owe.
How to register for the Import One-Stop Shop
Here are the steps involved in registering for the IOSS.
Step 1: Choose an EU country for IOSS registration
Before you can register for the IOSS, you must obtain an EU VAT number by registering for VAT in an EU member state. If you are not located in an EU country, you can choose any EU member country you like. Some companies choose the country where they do the most business, but it is often smart to consider:
- How complicated the registration process is.
- What language the registration portal is in.
For example, companies based in the U.S. may want to use the Irish VAT OSS because the portal is in English with a simple design.
Step 2: Appoint an intermediary
If you are not based in the EU or a country with a tax mutual assistance agreement, you must select an intermediary.
The intermediary is jointly and severally liable with your company for VAT that is due. Intermediaries take responsibility for paying the VAT on behalf of the registered business.
Intermediaries must be a taxable party that is established in the EU. Intermediaries receive a unique ID number that they will need during the customs clearing process.
Step 3: Complete the registration process
Next, you will need to use the IOSS portal for the member state where you registered for VAT. To complete this process, you'll need to provide business details, your VAT number, and information about who your intermediary is.
Step 4: Receive the IOSS number and use it for shipments
Once you’ve successfully completed the registration process, you'll obtain an IOSS number. This must be provided to your delivery service and displayed on all shipments eligible for IOSS. You should also include an invoice containing the relevant information including the VAT paid as part of the transaction.
The IOSS and marketplaces: Who is responsible for VAT?
Many sellers sell items through online portals such as Amazon or eBay. To simplify the process of collecting taxes, and maximize the chances all taxes will be collected and paid, many countries including the U.S., require these marketplaces to take on the obligations of collecting taxes due on the sale of consumer goods.
In the U.S., this means marketplaces collect sales taxes. In the EU, there are also special rules for marketplaces or electronic interfaces, platforms, or portals as they are also called. Marketplaces are considered facilitators of sales if:
- They indirectly or directly set the terms of the supply of goods.
- They are involved in authorizing payments when products are sold.
- They are involved in the delivery of the product.
If a marketplace meets any of these criteria, it is a deemed supplier. This means that, for purposes of VAT collection, the marketplace is considered to have received and supplied the goods themselves for purposes of VAT collection. Therefore, the marketplace becomes responsible for VAT compliance for all sales on their platform.
Eligible marketplaces can also apply for IOSS if the marketplace facilitates sales directly to customers of digital services or goods imported from non-EU countries that are valued at under €150.
VAT obligations if you sell goods on a marketplace
Sellers who make sales only through online marketplaces are not required to have their own IOSS registration because the marketplace has the legal obligation to report the VAT due to the end consumer.
If you sell on a marketplace that uses the IOSS approach, which many marketplaces do, the marketplace will provide you with their IOSS number and will create the mandatory invoice for IOSS participants that contains the required information.
You'll provide the invoice and list the seller's IOSS number with your delivery company when you ship your goods.
Common challenges and considerations
The IOSS model aims to simplify the process of VAT collection, but companies may still face complications when it comes to compliance, including:
- Managing VAT rates across different EU countries: Since tax rates vary, companies must understand how much they must collect and pay when selling goods and services in different parts of the world.
- The need for an intermediary for non-EU businesses: Companies based outside the EU can't just register for the IOSS and take responsibility for their own VAT tax payments. They must find an intermediary willing to be jointly liable for their tax obligations.
- Keeping accurate transaction records for VAT reporting: IOSS participants must regularly file forms via the online portal and must keep records for 10 years.
- Handling returns and VAT refunds under IOSS: Since VAT is collected at the point of sale, suppliers must adjust the VAT when goods are returned.
Alternatives to the IOSS
The IOSS is available only for certain transactions, and sellers are not required to participate. There are alternatives that can ensure that companies remain in compliance with VAT payment obligations, including:
- Standard customs clearance with Delivered Duty Unpaid: Customers pay for shipping at checkout, but also pay additional duties, taxes, and customs fees after the package has arrived. Customers pay these costs when they pick up their package.
- Using Delivered Duty Paid without IOSS: Sellers assume responsibility for the payment of VAT and other customs fees. Companies can work with a customs broker and will be billed for the cost of goods before import.
- One-Stop Shop: EU-based sellers can't use the IOSS unless the goods they are selling come from outside Europe. They can still register for the optional One-Stop Shop (OSS) scheme, which allows them to register for VAT in a single EU country and make one payment for distribution, rather than having to register and pay VAT separately in each EU country.
VAT returns may be submitted on a different schedule under these other programs, and OSS returns don't replace the VAT returns the sellers must submit to their member state to comply with their domestic VAT obligations.
FAQ
Post-Brexit, has anything changed?
Because the U.K. Is no longer part of the EU, the VAT rules for the supply of goods and services to and from third countries now apply when goods are transferred between the U.K. and EU countries.
Can a business use the Import One-Stop Shop and the One Stop Shop simultaneously?
IOSS and OSS are different tax schemes for different purposes. IOSS is generally used by non-EU businesses selling goods and services in the EU, while OSS is used for intra-EU sales of goods to customers.
What are the penalties for noncompliance with the IOSS?
Companies that do not submit required returns, who are late with returns, or who don't pay the required amount of VAT will be subject to a penalty equal to a percentage of the unpaid taxes due. There is a minimum penalty, and the fines and fees may sometimes exceed the original tax liability.
The bottom line
The IOSS scheme can greatly simplify compliance with VAT tax rules in the EU, but there are still many complexities associated with collecting and paying the required taxes due. If you are shipping goods into the EU from outside it, you will likely want to register for the IOSS.
You should strongly consider getting professional help registering for the scheme, finding an intermediary, and making sure you fulfill your obligations so you avoid costly fines. A tax compliance platform such as Numeral can make this process easy, so reach out to Numeral today to learn how to make international tax compliance easier than you ever imagined.
