Undeniably, the world ushered in an e-commerce era post-Corona. The unexpected boom in online sales over the last few years has taken the e-commerce landscape by storm. E-commerce trade empowered businesses to access the markets worldwide with consummate ease. However, this e-commerce progress and growth is not without uphill battles. For instance, importing goods digitally into the EU was previously subject to different VAT regulations. Hence, the EU introduced the Import One-stop Shop scheme (IOSS) to navigate the challenges of cross-border e-commerce transactions and help businesses with their tax optimisation. This extensive guide covers all the facets of IOSS and VAT compliance for a company selling its goods or services to EU-based consumers. Here, we will dive deeper into how IOSS streamlines the VAT compliance obligations for e-commerce businesses. Let’s get started!
How VAT IOSS Scheme Work?
The Import One Stop Shop (IOSS) was introduced as part of the eCommerce VAT rules. The IOSS affects how Value-Added Tax (VAT) on imported goods can be accounted for. The EU’s paramount purpose in introducing the IOSS was to facilitate and streamline the payment and collection of VAT for businesses making e-commerce sales of imported goods to consumers in the EU and Northern Ireland through an electronic portal. Furthermore, the Import One-stop Shop scheme simplifies VAT compliance by allowing a seller to register in a single EU member country to collect and pay VAT.
The Must-Know Facts About IOSS:
The following facts must be considered for a business to register for IOSS:
- The IOSS registration applies to all distance sales of imported goods to buyers in the EU.
- The imported goods in consignments are low-value goods valued at £135/€150 or less. Thus, the import threshold for IOSS registration is €150.
- A business must be established or located in a third country (i.e. outside the EU and Northern Ireland) at the point of sale. Alternatively, the goods are located outside the EU when they are being sold.
- The imported goods and services are sold to buyers in the EU or Northern Ireland.
- VAT rates valid under IOSS are determined on the basis of the buyer’s location within the EU.
- It has been in effect for all goods sold since July 1 2021.
Who can Register for IOSS?
If a supplier sells low-value imported goods in consignments to consumers in the EU, Northern Ireland, or both, they can register for the VAT IOSS. Similarly, both EU and non-EU suppliers can avail themselves of the Import One-stop Shop scheme. EU suppliers can register directly for the IOSS in their respective member states. However, non-EU suppliers must appoint an intermediary for the IOSS registration. It is noteworthy that this intermediary can only be a company established in the EU.
What is the IOSS Intermediary?
The IOSS intermediary acts on behalf of its clients to carry out all VAT payments to the tax authorities. It is also responsible for keeping records, declaring, and paying monthly IOSS VAT returns to its member state’s tax authorities. As a result, the IOSS intermediary is jointly accountable to the EU tax authorities for their clients’ VAT obligations. In addition, IOSS does not require the intermediary to deal with the suppliers’ customs declarations.
Is IOSS (Import One Stop Shop) Registration Mandatory?
No, it is not mandatory for sellers to register for IOSS. However, while it is an optional registration, it is strongly recommended for businesses selling to EU consumers in view of its benefits. To elaborate, if a seller does not opt for IOSS registration, it will still have to account for VAT, which often entails registering and filing returns in several EU countries. Likewise, if the seller chooses to collect the import VAT from the buyer through the postal operator, courier service or customs agent, they will go through needless hassles, like longer transit times, administrative fees, complicated customs clearance process, and displeased customers.
How to Implement IOSS Registration?
Following is the step-wise implementation of IOSS registration in a lucid way.
- A seller needs to have a fixed establishment in their relevant EU state for IOSS registration. In case of no fixed set-up in the EU, they will have to appoint an intermediary to conduct the IOSS obligations on their behalf.
- The registration process varies based on the seller’s location and the EU Member State they choose to register with.
- The seller can register on the IOSS portal of any EU member country to obtain the IOSS identification number. It is also called the Member State of Identification (MSID)
- The relevant information that the seller needs to provide for the IOSS identification number includes their business details, legal name, address, and VAT number.
- After acquiring the IOSS identification number, a seller can then successfully integrate the IOSS into their commerce system, which involves implementing pertinent changes to their website or marketplace. It will ensure the correct VAT amount that is to be collected at the time of sale.
- Now, when a customer places an order, the seller charges the applicable VAT rate based on their location inside the EU. This way, the seller can collect VAT directly from their consumers.
- The IOSS number in the electronic customs declaration identifies when VAT has been collected and who has collected VAT.
- The seller must submit regular IOSS VAT returns to the local tax authority of the EU member state where they registered on the IOSS portal.
- The IOSS VAT returns detail the VAT collected and declared for each transaction. It is obligatory to meet the specified deadlines for filing the IOSS returns.
The above steps have been illustrated using the pictorial depiction below for ease of understanding.
IOSS Offers Manifold Advantages for the E-commerce Businesses:
Easy Registration:
A seller registered for IOSS will be able to register in just one member state for all imported e-commerce supplies valued at €150. It makes the registration fuss-free for the sellers.
Tailored for E-commerce Businesses:
The Import One-stop Shop scheme resonates with importing and e-commerce businesses since it offers a feasible and convenient solution to directly sell their imported goods to EU customers. To exemplify, consider Amazon, an e-commerce giant, which has an IOSS registration number and deals with the collection of VAT for the sellers registered with it.
On the contrary, IOSS enables sellers running their e-commerce platforms to register on the IOSS electronic portal of any EU member country themselves.
Simplified Compliance:
IOSS simplifies VAT compliance by allowing businesses to file a single VAT return for all EU sales.
Swift Customs Clearance:
The Import One-stop Shop’s key benefit is that it ensures a swift customs clearance experience for both the seller and the buyer. Presently, most marketplaces are already registered for IOSS. Hence, independent and individual sellers often miss out on the benefits of a faster customs clearance process by not registering for IOSS.
To illustrate, it simplifies the process by creating one standardized rule for all EU countries. As all shipments under €150 are subject to the local rate of VAT in the recipient’s country, the IOSS portal declares and collects VAT alongside the payment of goods. Therefore, registering for the IOSS scheme means that goods arriving at the EU border will benefit from a speedy release at customs.
Monthly VAT Return:
With IOSS, e-commerce sellers can register with just one of the 27 EU tax authorities and submit one monthly IOSS VAT return in an effective manner that ensures the right VAT payment to the local tax authorities where customers are based. Further, the VAT payment deadline is the end of the month following the month of reporting. Subsequently, a seller can report and remit all import VAT due throughout the EU in just one monthly return.
Lastly, for non-EU sellers who register through an intermediary, the relevant information may need to be provided to the intermediary to fulfil the obligations of filing and submitting the IOSS returns.
No Extra Custom Charges:
Another significant benefit of registering for the IOSS is that customs will not collect any import VAT from the sellers at the point of importation. Rather, consumers will pay the VAT due on the goods at the point of sale. This way, consumers will avoid any further tax or customs charges upon delivery of the goods.
Simplified Process for Sellers:
The IOSS simplifies the process for suppliers, and the VAT due is incorporated in the price that the customer will pay. For instance, the seller charges VAT to a consumer at the applicable rate at the point of sale.
Tax Optimisation:
Furthermore, IOSS encompasses several tax optimisation benefits for the e-commerce sellers of imported goods, such as allowing them to collect and pay VAT at the point of sale (during checkout on the website). Consequently, sellers can evade customs delays and ensure a seamless customer experience.
However, this holds true only when the sellers of imported goods are located in the EU. For the businesses based in the third countries, an intermediary will have to be appointed.
Level Playing Field:
VAT import rules have become harmonized, centralized, and standardized with the establishment of the IOSS scheme. This signifies that the VAT rules are consistent across all 27 member states in the EU, enabling the EU-based seller to register in any country of their choice. Resultantly, it creates a level playing field, ensuring a fair and competitive environment for the businesses operating inside the EU.
Enhanced Customer Confidence:
IOSS scheme not only ensures fast and seamless delivery of goods to the customers but also gratifies them with transparency and forthrightness. The customers remain aware of what they pay at checkout, with no concealed or hidden costs. Beyond that, customers pay import VAT in advance for goods under €150 at the time of purchase. It essentially lowers the likelihood of returns which is nerve-wracking for busy e-commerce retailers. As a result, a seller bolsters their customer confidence in their brand.
Acquire Action-Driven and Proactive VAT E-Commerce Consultation with ACCOTAX:
At Accotax, we go the extra mile to ensure our client is gratified with our across-the-board consultation and services for impeccable VAT compliance. Our proficient accountants will satisfactorily address your e-commerce VAT compliance obligations. Above all else, our services are customized, ensuring compatibility with your financial specifications. Therefore, reach out to us today to get assistance with your VAT cost optimization and VAT compliance needs. For new clients, we are offering a free 30-minute call/meeting.
Disclaimer: All the information provided in this article on the Import One Stop Shop scheme, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.