Most European entrepreneurs working with the online sales of products and services have already used the MOSS scheme that was initiated several years ago in the EU. But from 1 July 2021, this program has been drastically extended and new options came into force. European e-commerce businesses should prepare for these amendments to work with VAT on the most beneficial conditions and avoid probable issues. Now let's dive into this confusing theme to clear up what is current MOSS scheme, what is new with OSS and IOSS, and how to prepare your business for these changes.
Here is a small introduction to this topic. Talking about VAT (value-added tax), we should consider different sides that take part in the process of inter-European distant sales of goods. The first side is a country where a company that sells goods and services (retailer) is established. The second side is a country from which the goods are delivered (also named as a country of departure; note that this country may differ from the place of incorporation). And last but not least is a country where your customer is based (also known as a country of arrival).
To clear this up, just imagine that your company incorporated in France sells goods that are stored in China to a customer from Italy. That is how this complex scheme looks like. And all these sides have different tax laws, various sales thresholds, and fundamentally different ways of cooperation with officials. Something should be done to simplify the situation, don't you think so? We are glad to say that the process is being upgraded!
About the Existing MOSS Scheme
The Mini One-Stop Shop scheme is being used for simplification of the online sale process of goods for individuals in and outside of the EU. MOSS allows companies to register for VAT in a single European country instead of a bunch of different countries where all of their customers are based. This is a great initiative that allows reducing business expenses and administrative workflow.
A business can sign up for MOSS in a certain EU country and pay the VAT directly in this country's special authority (in the case of Estonia, the Tax and Customs Board covers these services). Thus, the workflow that earlier was organized by accountants in-house, under the MOSS scheme, is supported by the authority that covers each VAT-related deductions to another EU Member State by itself. That's why there is no more need for entrepreneurs to care about a ton of previous issues on this matter.
According to the current rules, without MOSS, OSS, or IOSS schemes, companies must be subject to VAT in all countries from which goods are sent and customers are based. But a company should keep in mind that with an excess of the sales threshold in the customer's EU country (that until July varied from €30.000 to €100.000), a business must be registered as a VAT payer, remit VAT deductions, and file VAT returns in a certain EU Member State's authority of arrival. It means that in the case of working with inter-European customers, a company is likely to be registered for VAT in most of the EU Member States. What a confusing system, yeah?
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Summary of 1 July Changes
New OSS and IOSS schemes introduction
Abolishment of various threshold and introduction of a unified one — €10.000
Abolishment of VAT exemption on the imported goods at a cost below €22
New VAT rules for online marketplaces
What Is New OSS?
One-Stop Shop is an extended concept of MOSS. From July 2021, all distant sales throughout the EU are taxed in the Member State of arrival without a bunch of diverse thresholds. Also, using the OSS scheme, entrepreneurs aren't obliged to register as VAT payers in any of these countries. Another piece of great news is that the MOSS feature allowing entrepreneurs to make VAT returns and reports quarterly in a single EU country has remained with this scheme, too. No more overwhelming performance with a bunch of different jurisdictions all over Europe.
You should consider two main types of OSS — Non-Union and Union (that took place with MOSS, too). You are supposed to use a Non-Union scheme if your company is established outside of the EU, and use a Union scheme if your business is launched within the EU. Operating both ways, you sell goods and services precisely to European customers. But note that the OSS scheme works only if your goods are stored anywhere inside the EU. So if you want to sell your imported goods from third countries, there is a nice IOSS scheme which we'll explore slightly below.
There is a new unified inter-European sales threshold — €10.000 in place of the ton of diverse ones that were finally abolished. Until the excess of this threshold, a company is eligible to pay taxes just in the country of departure. Notice that the OSS scheme is a non-obligatory program, too. This means that you can freely register for VAT in each EU Member State where your customers are based. Total free rein in action!
Import One-Stop-Shop is similar to the OSS scheme but is used for products that are stored outside the EU (means that these goods are imported). Another feature is that using IOSS, you can sell your goods and services to European end customers only to the value not exceeding €150 (or its equivalent in local currency). You can also sign up for IOSS if you trade your goods at the cost of >€150 via electronic interfaces (such as Amazon, eBay, and other marketplaces). Note that you can use IOSS if your company is established both in and outside of the EU (but in the second case you'll have to find a mediator for your VAT payments within the Union).
If you don't register for VAT via IOSS or the threshold of €150 is exceeded, VAT will be paid either by the end customer in his EU Member State or by your company depending on each case. The IOSS scheme can't also be used if a customer orders several items in a single order with a total cost of more than €150 or buys certain products subject to excise duties. Take into account that the period for IOSS returns is monthly, which means that each month you must report and pay VAT to the tax authorities.
Notably, the rule about VAT exemption on the imported goods at a cost below €22 has been abolished according to the new July amendments. It means that all imported goods are going to be subject to VAT from 1 July 2021.
Summary of OSS and IOSS
Online sales for individuals only (B2B is not eligible)
Unified inter-European sales threshold of €10.000 (no threshold for non-EU companies)
Non-obligatory programs (you can freely account VAT as usual)
The tax period for OSS is quarterly, for IOSS is monthly
Both OSS and IOSS only for selling to European customers
OSS is used for trading with goods located in Europe, while IOSS is used to sell goods with a cost below €150 that are stored out of the Union
OSS Non-Union scheme is for companies registered outside of the EU, OSS Union scheme is for European businesses, while IOSS can be used both ways
Working with European customers you cannot combine OSS/IOSS with the usual inter-European VAT reporting
Even More Take-Into-Accounts
Note that the OSS and IOSS rules come into force for your company not immediately after the registration but only at the start of the next quarter after the application. One more rule is that you cannot combine OSS or IOSS with the usual VAT reporting. So if you've registered for OSS or IOSS, you must use only these schemes for all your sales within the EU. Notice, it is not the case of the country of the company's incorporation: using OSS or IOSS schemes, you shouldn't forget about the VAT requirements in your country — remember that these programs work only for non-domestic VAT liabilities. You can find more information about OSS and IOSS and explore a bunch of tables here.
There is a legal name for such platforms like eBay or Amazon — electronic interfaces (EI). And the operation of these marketplaces with VAT has been changed from 1 July, too. Actually, you can work with these platforms in different conditions: if a company is established in or outside of the EU, sells goods from European countries or third ones, and so on. Many of the retailers sell products via their own webshops and online marketplaces at once, which means that further changes affect a bunch of European SMEs. So what has been changed?
After the amendments, electronic interfaces may be considered 'deemed suppliers' under certain conditions: if retailers sell via this platform non-union products with a cost below €150, wherever the company was established and union products if a company was incorporated outside the EU. Being 'deemed suppliers' means that these electronic interfaces will be responsible to account for VAT, report and pay it to the tax authorities by themselves for a seller or a customer.
Unfortunately, these changes can affect your workflow because you'll have to provide a platform with data about your orders and a company. But instead, you'll avoid VAT on some of your orders conducted by a marketplace and make your customers' life easier. You can find more legal information about amendments in the work of online marketplaces on the official website of the EU.
Are These Schemes Really Helpful?
If you've read down here, you might be a little dizzy after all of these rules, restrictions, and schemes. But, in fairness, everything linked with the law and governmental initiatives often sounds unclear at first.
Yep, the amendments are aimed at simplifying the current situation, but in the first stages, they give additional complexities to the performance of European entrepreneurs and online platforms. If you are eager to use OSS and IOSS, you'll have to make a huge review of your current workflow to find which parts of business processes to adjust. Also, you'll have to decompose all modifications to the employees and prepare amended documents.
New OSS and IOSS schemes are made to simplify entrepreneurial and customers' everyday life and these changes should be evaluated in the long term perspective. Using these programs, your company may save a lot of money on inter-European online trade, and spare time working with marketplaces through new legality. These schemes also let you report and pay VAT on a single online platform — forget about different interfaces and searching the Net. Moreover, your customers are going to be more satisfied after these changes: the process of buying goods and services will become easier and faster due to no hidden costs and preliminary VAT accounting.
What If I've Already Signed Up For the MOSS Scheme?
Actually, you can freely stay working with MOSS even after these changes. However, you will be invited by the Member State of identification to update your registration data to provide them with information about your company's VAT numbers, electronic declaration (if you are an online marketplace), and other required information about your company's performance.
Can You Dispense With the Professional?
Even though OSS and IOSS are operationally similar to the well-known MOSS scheme, they consist of a high number of small details that are very hard to collect in one article. There are a bunch of other diverse thresholds, restrictions, and rules that can be taken into account only by the professional.
We can easily take care of OSS, IOSS, and other VAT-related issues. Your personal manager will lead you through all steps of applying for OSS and IOSS and clear up everything you may ask about VAT. Enty is about an in-depth automated approach to all business processes under one roof: from company incorporation to accounting and invoicing. Contact Enty and delegate the boring stuff now.