Following the introduction of the new EU VAT rules on 1st July 2021, we have compiled answers to the most commonly asked questions about the new IOSS scheme in order to help you understand your VAT obligations so you remain compliant.
What is IOSS?
IOSS is a scheme designed to simplify VAT compliance in the EU. It allows you to use one VAT registration to report VAT on sales to consumers in all 27 EU member states where the goods have been imported from outside of the EU. This includes goods sent from the UK. There is a consignment limit of 150 euros per shipment. Goods imported into the EU under the IOSS scheme will not incur import VAT or duties. They will pass through customs faster, meaning a better experience for your customer.
Why has IOSS been introduced?
IOSS was introduced to help combat VAT fraud which is estimated to cost the EU around 7 billion euros annually in lost revenue. It also helps to create a level playing field for all sellers (whether they are based within the EU or outside of the EU) by removing the import VAT exemption on goods under 22 euros which was previously benefitting non-EU sellers.
How does it work?
Upon registration, you will be given a unique IOSS identification number which you need to provide to customs, along with an invoice showing the VAT amount paid by the buyer in euros. You must charge destination VAT on all goods sold into the EU from 1st July, meaning VAT is due at the local rate of the country where your customer is based. Each month, you need to submit your EU sales data to us (Excel template provided). VAT Digital will use this to report the VAT you collected at the point of sale in the monthly IOSS VAT return by country. You will make one payment for any VAT due across all countries.
Do I have to charge VAT on all goods sold into the EU?
Yes. The low-value consignment relief threshold of 22 euros was scrapped when the new rules came into force on 1st July; meaning all goods sold into the EU are now subject to VAT.
What VAT rate should I use?
You need to charge destination VAT. For example, if your customer is in Germany then you need to charge German VAT on the sale.
What if the item I am selling is over 150 euros?
You cannot use the IOSS scheme for shipments over 150 euros. Additional charges such as customs duties may also be payable on items that are above this new threshold. You will need to ship items over 150 euros DAP or DDP (see further down for more information about these).
How long does it take to get an IOSS number?
VAT Digital is currently receiving IOSS numbers back in around 1 week once all the necessary paperwork has been completed & received; however this may change as demand increases. Any delays due to backlogs at the tax office are out of our control.
Can an IOSS application be backdated?
No. You will be told the date your IOSS number is valid from when you receive it.
What country should I apply in?
If you apply for IOSS with VAT Digital then we will apply through our intermediary in Poland.
I only sell on Amazon; do I need my own IOSS number?
No. If you only make sales via online marketplaces (OMPs), then you do not need your own IOSS number. From 1st July, it is the OMP’s responsibility to report the sale to the end consumer, including any VAT due. VAT due on sales made via their platforms will be deducted from any proceeds remitted to you by the OMP. You will simply report an exempt sale to the online marketplace in the country where the goods were despatched from.
The OMP (for example Amazon) will provide you with their IOSS number. They will also produce the invoices you need to give to your carrier to ship the goods through customs without incurring import VAT.
Do I have to register for IOSS when selling to the EU?
No. You can still use the standard DAP/DDP incoterms (shipping methods).
What is DAP?
This stands for Delivery At Place. For goods shipped under DAP, you do not need to charge sales VAT on the transactions and you will not be charged import VAT. Instead, your customer will have to pay the import VAT and any other customs duties, fees etc before the goods are released from customs on arrival.
What is DDP?
This stands for Delivery Duty Paid. For goods shipped under DDP, you should charge sales VAT on the transaction. You will need a VAT registration in the arrival country to report the sales VAT to the tax authority in the relevant country. Under DDP, you (the seller) will be charged import VAT. This can be offset against the sales VAT due as long as you have the correct paperwork to prove this. In some cases, it may be possible to apply for deferred import VAT schemes. Please contact us if you need more information about this as the rules vary from country to country.
What is an intermediary and do I need one?
An intermediary is responsible for the filing and payment of VAT under the regulations of the country in question. All non-EU countries require an intermediary in order to register for IOSS. VAT Digital are able to offer intermediary services for IOSS in Poland. An intermediary is jointly and severally liable for the filing of returns and the payment of any VAT due. The intermediary is required to pay the tax office on your behalf. Therefore, you will need to pay any VAT due to the intermediary in order to facilitate this.
What sales/items are not covered by the new IOSS scheme?
As mentioned previously, consignments with a value greater than 150 euros are not eligible for the IOSS scheme. Goods which are usually subject to excise duties (for example alcohol and tobacco products) are also not covered. Business to business (b2b) sales cannot be reported via IOSS.