Helping your business clients manage their VAT within the European Union (EU) has always been a relatively complex task. But since the recent changes to the EU VAT rules for goods and ecommerce, it’s possible that this complexity may be easier to manage
A new ‘One Stop Shop’ scheme has been introduced which aims to streamline the administration of the VAT process. This means having conversations with your affected clients so you can help them plan for these changes and register for the new IOSS and OSS systems.
Previously, clients that delivered digital services to the EU could make use of the Mini One Stop Shop (MOSS) – an online portal for declaring and paying EU VAT.
By registering in one member state, your client could declare the VAT that was due for sales in all EU member states. This helped to simplify the system and make it easier for companies and their advisers to manage any EU VAT liabilities.
So, what has changed?
From 1 July 2021, this system has been extended to cover ‘all business-to-consumer (B2C) services that take place in EU member states where the supplier is not established’.
The new One Stop Shop scheme expands on the previous MOSS system. It will now apply to ‘all distance sales of goods within the EU and to certain domestic supplies of goods facilitated by electronic interfaces under certain conditions’.
A second scheme has also been created, called the Import One Stop Shop (IOSS). The IOSS is used to declare and pay VAT on distance sales of low-value goods imported from outside the EU.
This all sounds like a positive move, on the whole. Rather than having to register for VAT in multiple countries, your clients will be able to register in one specific EU member state if they choose to. All VAT will then be processed via this single member state, using the OSS or IOSS schemes.
But which scheme should your clients be using when they are selling into (and out of) the EU?
Let’s take a look at some of the detail:
The OSS is used when your client needs to declare VAT on intra-community distance sales and business-to-consumer (B2C) services. It can also be used to declare e-services that have been sold in all EU countries.
The IOSS is used when your client needs to declare VAT due on distance sales of goods imported into the EU. To qualify for using the IOSS, consignments (and not individual items) sent to the client’s customer can only have a maximum value of €150 (£130).
At this point, it’s worth explaining the key benefits of registration. And also how the client’s VAT processes will change under the OSS/IOSS.
In essence, the main value lies in being able to declare and pay EU VAT through one centralised portal. This keeps the whole process faster and simpler, and should streamline the VAT work that’s required for the client’s submissions.
Here’s what the process looks like:
The business registers for the OSS/IOSS in their EU member state of choice. Think about the logistical implication of the choice of location and where the business holds the best local knowledge and expertise.
Once registered for the OSS/IOSS, the business will then charge VAT on each sale using the rate applicable in the customer’s country. It’s important to remember that it’s the customer’s location and not the business’ location that defines the VAT rate.
Sales made during the period are reported, broken down by country. The business then makes one single VAT payment to the tax authority in their country of registration. This cuts out the need for multiple VAT submissions and payments across all member states. It also means the business can deal in one familiar language for all its VAT.
The tax authority in the client’s registered member state will then distribute the VAT that’s been collected to all the individual tax authorities for the EU member states where the client has made sales.
There are some other points to bear in mind:
You can’t use the IOSS if...
- the goods are subject to excise duty in the destination country
- or the consignment has an intrinsic value exceeding €150.
In these circumstances, the customer is liable for excise duty and VAT. This will increase the price of the goods for consumers, which could have an implication for the client’s brand and their ability to market to EU customers.
If your client sells to EU customers through a marketplace (such as Amazon or an online antiques marketplace), the marketplace can cover the VAT charge. It’s worth noting that this may incur a 30% charge, so you may want to discuss what would make most financial sense on a client-to-client basis.
The new One Stop Shop approach is in action across Europe. So, now is the perfect time to schedule a catch-up with clients and to open up the subject of their VAT commitments.
As with all administrative changes, it will take time and planning to get set up correctly for the new VAT portal. But there’s great potential for making your clients’ EU VAT process more efficient, less complex and easier for the company to manage.
If you have a large number of clients that export and/or import to the EU, this is a golden opportunity to add some value and help them register for the OSS/IOSS schemes.