From 1 July 2021 the VAT rules around selling good & services online into Europe will change considerably. These changes only relate to businesses selling direct to consumers in the EU and does not apply to business to business transactions. Essentially the change is that now the consumer will be charged VAT in the country where these goods are consumed. These changes are part of an overall drive by the European Commission to move the VAT system to a ‘destination principle’. The seller will have to charge VAT in the country where the consumer has bought the goods. While this sounds like a nightmare for businesses – it’s not as bad as first thought. Businesses will not have to register for VAT in each individual country but instead sign up to a One Stop Shop system in Ireland where all the foreign VAT will be paid to the Irish Revenue and the Revenue will send it out to each EU country.
The system mirrors the current way of dealing with the supplies of digital services which has been in place since 2015. The new process will include all sales of goods and services over the internet. The new name for this scheme is the One Stop Shop (OSS). At present, distance selling requirements mean that businesses who sell goods in the EU directly to consumers are required to register for VAT in each EU country once they go over a certain threshold. For instance, if a company sells goods online into Ireland the threshold is €35,000. Once the seller goes over this amount they need to register for VAT in Ireland. If they do not breach this amount, they can charge local VAT. This is called distance selling and this method is being abolished from 1 July 2021.
In order to ease this administrative burden, the OSS will allow businesses who sell directly to consumers to file one OSS return that declares all EU-wide sales. The seller then remits the VAT due to their home VAT authority, which then forwards the taxes to the appropriate countries. Non-EU businesses can also avail of the OSS and will just need to nominate a single EU state in which to register and file the OSS. The introduction of the OSS scheme means that the “distance selling” thresholds are no longer applicable. The seller will still be required to file a domestic VAT return in their home country alongside the OSS return. There is also an exemption from registering for OSS for small businesses where their EU sales for the year in total are under €10,000
Non-EU Seller
Sellers who are not EU resident are also entitled to use the OSS scheme. All they need to do is register as a “non-union” business in any EU member state of their choice. They will then be able to file an OSS return the same as any other “union” business. They will also be required to file one domestic VAT return alongside the OSS return in any EU member state of choice.
The above “non-union” OSS scheme applies to the UK as they are no longer part of the EU. Therefore, a UK entity will need to comply with the “non-union” rules in order to avail of the OSS scheme
Import One Stop Shop (IOSS)
Currently, goods imported into the EU with a value of less than €23 are exempt from VAT. This ends 1st July 2021, and all imports will be subject to EU VAT. This IOSS scheme is specifically available for the sale of goods not exceeding €150 in value from businesses outside the EU to buyers inside the EU. The scheme operates by allowing the seller to charge and collect VAT at the point of sale and then declaring and paying that VAT to the appropriate Member State via an IOSS return. Therefore, by using the IOSS scheme there is no VAT charged at the time of importation. If the value of the goods exceeds €150 then the traditional import rules apply.
Businesses established in EU member states can also avail of this scheme by applying to register in their own member state. Again, for the purposes of the IOSS scheme any UK business will be regarded as “non-union”
If you would like to discuss the applicability of either of the above schemes for your business please feel free to contact Dave O’Brien (Dave.obrien@quintas.ie), Kevin Canning (Kevin.canning@quintas.ie) , Adam McCarthy (Adam.mccarthy@quintas.ie) or Kyle Baxter (Kyle.baxter@quintas.ie).
