What US sellers need to know about EU IOSS intermediaries
A sweeping value-added tax (VAT) reform package will come into force in the European Union (EU) on July 1, 2021. Affecting many companies in the business-to-consumer (B2C) ecommerce supply chain that sell to consumers in the EU, these reforms will impact EU and non-EU businesses in different ways. This post is geared toward U.S. businesses that sell across borders and focuses on the new Import One-Stop Shop, or IOSS, which provides non-EU companies access to all 27 member states of the biggest trading bloc in the world with a single registration.
What is the IOSS?
The Import One-Stop Shop is a new electronic portal designed to simplify VAT compliance requirements for non-EU ecommerce merchants and deemed suppliers (i.e., marketplace facilitators) selling low-value goods into the EU. All 27 EU member states are participating in the IOSS scheme.
Starting July 1, 2021, VAT must be collected on commercial imports with a total shipment value under €150. The IOSS facilitates the collection, declaration, and payment of the VAT due on these low-value imports by creating a fast track or “green channel” for quick and easy customs clearance. However, the IOSS cannot be used to collect, declare, or pay the VAT due on shipments valued at or above €150.
There’s a trade-off for the expedited clearance offered by the IOSS: Sellers using the IOSS must collect VAT at the point of sale, not upon import into the EU.
Use of the IOSS is voluntary, not mandatory. However, the benefits of the IOSS will make it an attractive option for many B2C ecommerce retailers and marketplaces, as well as their customers.
Note: For shipments valued at or above €150, import VAT will continue to be due upon import into the EU. See the European Commission Taxation and Customs Union for more details.
Benefits to using the IOSS
For businesses, the greatest advantage of the IOSS scheme is that it provides companies access to all 27 member states of the biggest trading bloc in the world with one single registration. That point can’t be overemphasized.
Additional benefits to businesses and their EU customers include:
- Expedited customs clearance. The IOSS system will help prevent delays at customs because VAT is collected at the point of sale. Low-value imports (shipments valued < €150) should sail through a “green channel” at customs.
- Increased transparency for consumers. Because consumers are charged the total cost of goods, including import VAT, up front, at checkout, they should encounter fewer surprise costs when a package arrives at customs.
- Simplified compliance for merchants. Ecommerce sellers and marketplaces can use a single IOSS registration to report and pay VAT on all low-value shipments (< €150) into the 27 EU member states, reducing cash flow issues created by the standard method.
- Streamlined logistics. Goods listed in the IOSS with proper Harmonized System codes (HS codes) can move freely within the EU, thus can be imported into any member state and subsequently transported to their final destination. Goods imported without the IOSS regime must arrive and clear customs in the member state where the goods will be delivered to the end user (i.e., the destination country).
How to register for the IOSS
Though the IOSS will greatly simplify VAT collection, declaration, and payment for ecommerce merchants and marketplaces, there’s one tricky bit: Non-EU businesses cannot register directly for the IOSS unless they’re established in a country that has a VAT mutual assistance agreement with the EU. As of this writing, the only country with such an agreement is Norway.
Therefore, non-EU businesses will need to appoint an approved EU-established intermediary to represent them and “fulfill their VAT obligations under IOSS.” Non-EU businesses are required to register in the intermediary’s member state. For example, a non-EU business working with an intermediary based in France must be registered in France (i.e., France must be the member state of identification).
What you need to know about IOSS intermediaries
To emphasize the point, businesses based outside of the EU cannot register for the IOSS themselves. Non-EU businesses must hire an IOSS intermediary to complete the IOSS registration on their behalf.
Residency requirements for IOSS intermediaries
An IOSS intermediary must reside in an EU member state and register with tax authorities of that country.
Registration requirements for IOSS intermediaries and their clients
Upon registering with the tax authorities, an IOSS intermediary will receive an identification number that’s unique to them. This number is needed during the customs clearance process.
It’s the job of an IOSS intermediary to register the name of all the businesses they represent with the IOSS intermediary’s home tax office. Once registration is complete, the IOSS intermediary will receive an IOSS VAT identification number for each seller.
What you need to do to use the IOSS
Merchants should do the following:
- Display the amount of VAT paid by the buyer when the order is finalized
- Collect VAT from the buyer at checkout
- Classify their catalog of products to HS codes (known as TARIC codes in the EU) and include codes on the shipping label and commercial invoice provided to the carrier
- Make sure shipments do not exceed the €150 threshold (value is based on total value of a shipment)
- State the price paid by the buyer on the invoice, in euros
- Provide the information required for customs clearance in the EU, including the IOSS VAT identification number, to the person declaring goods at the EU border
- Submit a monthly VAT return electronically, via the IOSS portal of the member state where you’re registered for the IOSS
- Make a monthly payment of the VAT declared in the VAT return to the member state where you’re registered for the IOSS
- Maintain records of all eligible IOSS sales and/or facilitated sales for 10 years
Note: Starting July 1, 2021, the marketplace facilitator is the deemed supplier responsible for the VAT due on third-party sales. Marketplace sellers that sell only through a registered marketplace and don’t make direct sales into the EU aren’t required to register.
What if I don’t want to use the IOSS?
The IOSS isn’t compulsory. Non-EU businesses can instead elect to have the customs declarant collect import VAT from the final consumer when shipments enter the EU. The customs declarant — usually the postal operator, courier firm, or a customs agent — must then submit the VAT monthly.
Consumers will likely find this option less appealing. Their packages could be held up at customs, and they could be surprised when they’re required to pay the VAT due, especially if the package contains a gift.
The goal of the IOSS scheme is twofold:
To make it easier to sell online and support the growth of the digital economy in Europe
To fight fraud and ensure all sellers are collecting and remitting VAT as required
The introduction of the IOSS scheme is one of several significant tax changes taking effect in the EU on July 1, 2021. Others include the elimination of the VAT exemption for goods valued ≤ €22 and deeming marketplace facilitators the supplier liable for the payment of VAT on third-party sales. EU-based businesses will also face other changes.
Together, these measures should help reduce VAT fraud, which is a significant problem throughout the European Union. They should also level the playing field for EU retailers and non-EU retailers, as VAT will now apply to all taxable imports. At the same time, the IOSS should simplify the burdens of collecting, remitting, and reporting VAT.
Avalara’s end-to-end IOSS solution, which includes serving as an intermediary and obtaining IOSS registration numbers, can help U.S. retailers and marketplaces of all sizes navigate the forthcoming changes to the EU VAT system, whether they currently have EU-based customers or plan to expand in the future. And Avalara Managed Tariff Code Classification helps sellers quickly identify the HS codes required for IOSS customs clearance documentation.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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