Starting from 1 July 2021, VAT will apply to all non-EU purchases. The regulation change will have a significant effect on distance sales into the European Union. In order to facilitate the collection, declaration, and payment of VAT under the new regulations, the IOSS scheme was created for sellers as an extension to the already existing MOSS scheme (which applies only to services). If you own an e-commerce business, you should learn about the requirements of the IOSS and update your procedures for the new scheme.
Changes to the VAT of non-EU purchases
So far, neither VAT nor customs duty has applied to non-EU purchases under the value of EUR 22. Goods with a value of EUR 22-150 have been subject to VAT, but not to customs duty. From 1 July, VAT will also apply to goods under the value of EUR 22, meaning that no third-country purchases will be exempt from VAT. Goods with a value not exceeding EUR 150 will be taxed upon purchase through the IOSS, while goods with a higher value will be taxed upon importation. Purchases up to the value of EUR 150 will be exempt from customs duty, but certain goods (most notably alcohol, cologne, perfume, and tobacco) will be subject to customs duty regardless their value. These purchases will not be covered by the IOSS. Click here to learn more about the upcoming changes to VAT and customs duty applicable to non-EU purchases.
How does the IOSS work?
From 1 April, e-commerce businesses can register for an IOSS VAT identification number on the IOSS portal of any EU member state. (Click here for the Hungarian IOSS portal.) If your enterprise is not established anywhere in the European Union, you will need an EU resident as an intermediary to qualify for the IOSS. The EU-based intermediary shares responsibility for the submission of VAT returns and the payment of VAT. You can start using the scheme on 1 July. Under the IOSS, you will need to apply VAT to the price of the goods that you sell. The purchases will be subject to the VAT applicable in the country of the customer. (Click here for the VAT rates applicable in specific EU member states.) Furthermore, you will have to do the following:
- Display the amount of VAT to be paid when your customers make a purchase (you may need to update your platform for calculating and displaying the VAT applicable based on the customer’s location)
- Ensure that your invoices contain the price paid by the customer in EUR
- Provide information about the goods you sell for customs clearance purposes
- To remain eligible for administration in the IOSS, ship your products in consignments with a value not exceeding a total of EUR 150 (you are entitled to do this even if the order contains more than one item)
- Submit a monthly VAT return to the member state where you are registered
- Keep records of all your sales made under the IOSS scheme for 10 years
The advantages of the IOSS
The IOSS makes e-commerce into the European Union more straightforward for sellers and buyers alike. Sellers will enjoy the simplified collection, declaration, and payment of VAT after their distance sales into the European Union. Meanwhile, buyers will be charged only once for their purchases: VAT will not have to be paid upon receiving the order because it will be included in the price. By contrast, if the seller does not have an IOSS VAT identification number, the buyer will need to pay the VAT (and the customs clearance fee) separately to the transporter.
Need help with the IOSS? Contact us!
If you are shipping goods into the European Union from a third country, learn about the IOSS scheme to understand how it affects your operations.
If you would like to know more, contact your English-speaking accountant at Helpers Finance. You can learn about our accounting services here. You can ask for a consultation by calling our office on +36 1 215 0712, by e-mailing email@example.com or by filling in our contact form.
If you would like to be notified about our future blog posts, like us on Facebook.