All You Need To Know About The Import One-Stop Shop (IOSS)
The boom of eCommerce, and the acceleration of many businesses' digital transformations caused by the Covid-19 crisis, has stressed even further the importance of removing market barriers while making it easier and cheaper to sell and ship products cross-border - especially for SMEs.
The complexity of VAT obligations across the EU member states makes it costly, time-consuming and extremely difficult for non-EU online retailers to engage in EU cross-border trade and comply with the different VAT duties expected of them.
Fortunately, new EU VAT rules are coming into effect from 1st July 2021, resulting in fairer taxation, reduced VAT fraud, and a simpler, faster process to declare and pay VAT for goods imported into the EU.
What is changing from 1st July 2021?
New VAT rules have been introduced as of 1st July 2021 for distance sales of goods from inside and outside the EU. To begin with, the value-added tax (VAT) exemption for the importation of goods not exceeding EUR 22 will be removed.
The EUR 22 VAT exemption on goods being imported into the EU has been heavily exploited by several sellers across eCommerce, who deliberately were under-declaring their products' import values to avoid VAT.
As a result, from 1st July 2021, all goods imported to the EU are now subject to VAT. Moreover, VAT charged at the point-of-sale for products up to EUR 150 can be declared and paid via a new submission, the Import One Stop Shop (IOSS).
The new rules will ensure that VAT is always paid where the online purchase of goods and services takes place, re-establish a fair competition between European and foreign eCommerce sellers - as well as between eCommerce and brick-and-mortar shops - and offer businesses a simple and uniform system to declare and pay their VAT obligations from cross-border transactions to buyers in the EU.
Nothing changes for the collection of customs duties and VAT on imported goods valued at more than EUR 150.
For reference, the EU member states are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
How does the IOSS work?
Non-EU retailers who are shipping goods from their home country to customers across the EU can now register to use the IOSS to report all their pan-EU sales (which cost up to EUR 150 per consignment).
Prior to these changes, retailers who wished to sell their products to buyers in the EU needed to be registered for VAT in each country they are sending their products to, in order to apply VAT at the rate applicable in the EU country where the goods are to be delivered.
When registered with the IOSS, online sellers will be able to directly collect VAT from the buyer at the point of sale for consignments up to EUR 150, and report all their EU sales on a single VAT return in just one member state - instead of having multiple VAT registrations across the EU.
Sellers registered with the IOSS need to apply VAT when selling goods destined for a buyer in an EU member state, at the rate applicable in the EU member state where the goods are to be delivered. Information on the VAT rates in the EU can be found here.
When registering for the IOSS, online sellers receive an IOSS VAT number, which consists of twelve alphanumeric characters. Postal operators and carriers use this IOSS VAT number to declare goods upon importation to the customs authorities. They can do so in any member state, regardless of the destination of the goods.
The customs authorities, when receiving an IOSS VAT identification number in the dataset of the customs declaration, will make an automatic check of its validity against the IOSS VAT identification number database.
Suppose the IOSS number is valid, and the intrinsic value of the consignment does not exceed EUR 150. In that case, the customs authorities will not request VAT payment for the goods imported under the IOSS, and the package can be delivered to the customer.
IOSS also makes the process easier for the buyer, who is only 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 for the IOSS, VAT must be collected before goods can be delivered to the customer.
In that case, goods can only be customs cleared in the member state where the goods will be delivered to the customer. Postal operators and carriers will collect the VAT (and usually a customs clearance fee) directly from the customer and pay it to the authorities.
IOSS and online marketplaces
If the sale of goods to buyers in the EU is facilitated through an electronic interface, the electronic interface is considered to have made the sale and is, in principle, liable for the payment of VAT.
The electronic interface is deemed to have facilitated the sale of imported goods when it allows a buyer and a seller to enter into contact via that electronic interface, where the end result is the sale of goods to that buyer.
According to the European Commission, an electronic interface should be understood as a broad concept, which allows two independent systems or the system and the end-user to communicate with the help of a device or program.
As a result, from 1st July 2021, online marketplaces are deemed the supplier (the taxable person who is considered to receive the goods from the underlying supplier and supply the goods to the final consumer) when they facilitate certain EU cross-border B2C transactions for their third-party sellers.
For imports not exceeding EUR 150, instead of import VAT, the marketplace will charge the buyer VAT (at the VAT rate of the buyer's country of residence) at the point-of-sale and declare it instead of the seller.
Therefore, marketplaces are responsible for collecting VAT due from the buyer and then submitting an electronic monthly VAT return via the IOSS portal of the member state where the electronic interface is registered for the IOSS.
It is worth noting that an online marketplace will have a single IOSS VAT identification number, irrespective of the number of sellers for which it facilitates distance sales of imported low-value goods to EU customers.
If the marketplace has registered in the IOSS and also organises the dispatch or transport of the goods to the customer, the seller has no specific VAT related obligations in the EU.
However, if the seller organises the dispatch or transport to the customer, the marketplace will provide the seller with its IOSS VAT identification number to be transmitted to the person that is responsible for the declaration of the goods for release into free circulation in the EU (e.g., postal operator, carrier, or customs agent).
There is scope for the marketplace to opt-out of this scheme and the VAT obligations to be transferred to the carrier or postal operator used by the seller. In that case, the VAT related to those goods will be collected upon importation in the EU. The VAT is due in the member state where the dispatch or the transport of the goods ends, and the customer shall pay it.
In OnBuy’s case, remember that their business model makes them work a little differently. Because they don't handle stock, or the funds of any transactions, OnBuy’s role is about instead making sure its seller base has all the resources and knowledge they need to remain compliant and grow under their own initiative.
When does the IOSS not apply?
If you are about to sell several goods to the same buyer that individually cost less than EUR 150, but you ship them as a single consignment that amounts to more than EUR 150, then these goods are not covered by the IOSS and will be taxed at importation in the EU member state of destination.
Furthermore, sellers holding stocks in other EU countries will not benefit from the IOSS. This is because they must remain VAT registered in each country where they are holding stocks to record any intra-community goods movements.
It is also worth noting that IOSS does not cover goods subject to excise duties such as alcohol and tobacco products.
How can I register for the IOSS?
Since 1st April 2021, you’ve been able to register your business on the IOSS portal of any EU member state. If your business isn’t based in the EU, you’ll need to appoint an EU-established intermediary to fulfil your VAT obligations under the IOSS.
An intermediary is a taxable person established in any EU member state whose responsibility is to declare and pay the VAT for all imported goods.
After your business is registered for the IOSS in the member state where your intermediary is based, you will receive your IOSS VAT number. You can then use this number to declare all sales to your customers in all EU member states and pass it to your carrier, who will use it to declare goods to the customs authorities.
What do you need to do after registering for the IOSS?
- Provide your IOSS VAT number to the person declaring the goods at the EU border. That would usually be a postal operator or a carrier
- Display the amount of VAT to be paid by the buyer in the EU at the latest when the ordering process is finalised.
- Ensure the collection of VAT from the buyer on the supply of all eligible goods with final destination in an EU member state.
- Make sure that eligible goods are shipped in consignments not exceeding the EUR 150 threshold.
- Either on the VAT invoice (if issued) or on the commercial invoice accompanying the goods for customs clearance, it is recommended to show a) the price paid by the customer in EUR; b) separately, per each VAT rate, the VAT amount charged to the customer.
- Submit an electronic monthly VAT return via the IOSS portal of the member state where you are identified for IOSS, broken down per member state of destination and VAT rate. You should also show the total VAT due (your intermediary should be responsible for that if your business is based outside the EU).
- Make a monthly payment of the VAT declared in the VAT return to the member state where you are identified for IOSS.
- Keep records of all eligible IOSS sales for 10 years for future controls.
How can Shiptheory help?
Shiptheory not only automatically generates your shipping labels and customs documentation (like CN22A, CN22B and CN23 forms, commercial invoices, and electronic paperless trade documents for where the carrier and country support it), all moments after an order is complete, but it also passes your IOSS number directly to your carriers on your behalf.
As a result, Shiptheory has you covered in terms of international shipping documentation, and we also provide you with a handy commodity data checking tool that automatically identifies and highlights any issues or omissions in your product data. This significantly reduces the chance of your international shipments being delayed, returned, or in your having to pay more tax.
OnBuy’s partners enhance how you sell
OnBuy’s success means that sellers succeed - and a big ingredient in that is the relationships we build along the way.
OnBuy would like to extend a huge thank-you to its trusted partners Shiptheory, the shipping and logistics expert who put together this article, as well as Avalara, the financial and tax specialists who help countless sellers stay compliant as tax regulations evolve around the world.
Shiptheory is a cloud-based shipping management platform that connects eCommerce retailers with the world's best carriers, like Royal Mail, FedEx, DPD, USPS, and more - all to automate shipping labels, manifests, customs documentation, and tracking.
Shiptheory is an official OnBuy partner.
Avalara is a tax and finance business rich with advice for remaining tax-compliant in eCommerce - as well as a developer of technologies that help to streamline the whole process. Avalara’s Compliance Cloud uses a plug-and-play level of connectivity to break down complex tax terminology into easy-to-grasp concepts that let you get on with running your business efficiently.
Avalara is an official OnBuy partner.