As from July 2021, all goods imported into the European Union will be subject to VAT. The exemption for the importation of consignments below EUR 22 will be abolished. Sellers shipping low-value goods to EU consumers will be able to benefit from a simplification regime called Import One Stop Shop (IOSS). This regime will be voluntary: if the seller opts to use it, he will charge VAT of the customer country at the time of sale and no VAT will be levied upon importation when goods arrive in the EU. The commercial benefit of using the IOSS is transparency: the customer will pay a VAT inclusive price at the time of the transaction and will not face any additional charges when the goods are imported. The use of the IOSS aims for a quick release of the goods by the customs authorities and simplifies logistics issues as the goods can be released for free circulation in any Member State.
A monthly listing containing the total value of imports of goods declared in the EU for each IOSS VAT identification number during a given month will be prepared based on the customs declarations submitted in each EU Member State. The aggregated monthly listings will be made available to tax authorities who will use them to check the value of imports declared as exempt under an IOSS VAT identification number with the value of the VAT declared in the IOSS return by the same seller.
How will the IOSS work?
To use the IOSS, the seller must register in one Member State where he will be allocated an IOSS identification number (this is a unique number that cannot be used for any other VAT purposes than the IOSS scheme). Sellers who are already registered in an EU country and have a VAT number will have to register again for IOSS purposes.
Under the IOSS, sellers will charge VAT of the customer country at the time of the sale rather than pay import VAT when the goods enter the EU territory. When the goods arrive at the EU border, the person transporting them will present the IOSS VAT identification number of the supplier to the customs administration to show that VAT has already been paid on this consignment. No additional import VAT will be due upon importation. The goods can be imported in any Member State (i.e. the country of import does not have to be the same as the country of the final destination of the goods). The seller will be obliged to submit a monthly VAT return in the Member State of registration, in which all his sales under the IOSS must be declared. If an online marketplace is involved in facilitating the sale of goods, it will be deemed to be making the supply to the EU consumer instead of the seller.
Who may benefit from IOSS?
The IOSS is available for both EU and non-EU sellers. However, sellers who are established in a non-EU country must appoint an intermediary unless the European Union has concluded an agreement on mutual assistance in VAT matters with the seller’s country and the seller ships goods from the specific country. So far such agreements have been concluded with Norway and the UK (a protocol on mutual assistance is included in the trade and cooperation agreement signed on 24 December 2020). However, it remains to be seen whether UK companies will be exempted from the obligation to appoint an intermediary as some Member States still require UK companies to appoint local fiscal representatives despite a mutual assistance agreement in place. Irrespective of the above, if UK or Norwegian companies ship goods from other third countries into the EU, an intermediary will have to be established.
According to the European Commission’s website, Member States should begin IOSS registrations as from April. Unfortunately, this will not happen in all Member States as several countries have experienced delays in the implementation of the new VAT rules.
What may be shipped under the IOSS?
IOSS can only be applied if the value of the consignment not containing goods subject to excise duties is below EUR 150. If a customer purchases several low-value items (e.g. dress for EUR 100 and blouse for EUR 60) and both items are shipped together, the IOSS cannot be applied. However, if the items are shipped separately, they qualify for the IOSS. This means that the seller (or the platform facilitating the supply) needs to know how goods will be shipped to the customer at the time of the sale. If several customer orders qualifying for the IOSS will be bundled together in one consignment exceeding EUR 150, import VAT will be levied at the border, irrespective of the fact that VAT has already been paid at the checkout. Someone (the seller, the customer or their representatives) will have to act as the importer of record and comply with all import formalities.
Sellers using the IOSS must keep records of all transactions covered by this special scheme for 10 years. These records must include among others invoice data (VAT rate, taxable amount), financial data (date and amount of payments received) and some logistics documentation (information used to determine the place where the dispatch or the transport of the goods to the customer begins and ends and proof of returns in case the goods were sent back). The required information must be recorded in such a way that it can be made available by electronic means to the tax administration without delay and in respect of each individual product supplied. For non-EU sellers requiring an intermediary, the (not insignificant) costs involved in using fiscal representation will increase the compliance burden. E-retailers who ship goods in consignments both below and above EUR 150 will have to use the standard import procedures for the latter. As only a part of their sales will be covered by the IOSS, they will not be able to do away with VAT and customs formalities arising upon importation.