Business-to-customer (‘B2C’) sales of goods to the EU can be dealt with in one of two ways, which are at the choice of the supplier. Under the first method, the supplier can zero-rate their supply to their customer, and the customer accounts for VAT at the time of importation. This is simple for the supplier, but the customer has increased complications and may end up with an unexpected cost of additional VAT or duty on top of the purchase price.
Some postal operators and couriers also charge a handling fee to cover the costs of dealing with import documentation, etc. The goods are also not released to the customer until all the fees are paid. This can result in the customer refusing to accept the package in question because of the additional costs.
The second method is a simplification measure introduced by the EU called the Import One-Stop Shop (IOSS), which is similar to the ‘MOSS’ system for supplying digital services. The new scheme came into force on 1 July 2021.
This new scheme applies to B2C imports of goods costing less than 150 Euros. The 150 Euro limit applies to the total VAT of the consignment not the individual items. The EU is also removing the 22 Euro import VAT exemption, so from 1 July 2021, domestic VAT will be due on goods being imported into the EU. Under IOSS, a business can register in one Member State of its choice and account for VAT on all qualifying sales in all EU Member States on one VAT return.
Advantages of Using the IOSS
The IOSS allows suppliers and online marketplaces selling imported goods to buyers in the EU to collect, declare and pay the VAT to the tax authorities instead of making the buyer pay the VAT when the goods are imported into the EU, as was previously the case.
The IOSS facilitates the collection, declaration, and payment of VAT for sellers that are making distance sales of imported goods to buyers in the EU. The IOSS also makes the process easier for the buyer, who is only postal charged at the time of purchase and therefore does not face any surprise fees when the goods are delivered. If the seller is not registered in the IOSS, the buyer must pay the VAT and usually a customs clearance fee charged by the transporter.
Where the goods are sold through an online marketplace, it is the marketplace that can register for IOSS and account for VAT on the sales rather than the individual business. This can be a great advantage to small sellers as all the administration is carried out by the online marketplace.
Non-EU sellers or facilitating marketplaces from countries without a ‘mutual assistance’ EU agreement opting to use IOSS will have to appoint an intermediary (a fiscal representative). The intermediary shares the responsibilities for the supplier under the IOSS regime – submissions of returns and VAT payments.
An intermediary should be registered with the tax authorities of their country of establishment to obtain their unique identification number to use with customs clearance processes. The intermediary also registers the name of all sellers or marketplaces they represent with their home tax office, and will receive in return an IOSS VAT identification number for each seller.
The new IOSS system is likely to prove popular with businesses, as it simplifies the process of selling online into the EU.
Practical Tip
If a business is selling low-value consignments of goods to the EU, they can deal with all of their sales through one VAT registration covering all their EU B2C sales.
