The European Union (EU) is making changes to the Value Added Tax (VAT) effective as of July 1st, 2021.
Who is Impacted By These Changes?
All Merchants currently selling to EU-based consumers will be impacted by these changes.
What Are the Changes?
For Merchants Not Registered in the EU
Removal of the €22 Import VAT Exemption.
Prior to July 1st, 2021 any purchases shipped from outside of the EU with a total value below €22 are exempt from VAT. After July 1st buyers will be required to pay VAT on all purchases. Import VAT and duties will continue to apply on orders above this threshold. Merchants have the option to collect the VAT at purchase and remit the VAT back to the destination country or the buyers will be charged upon delivery by the carrier.
Import One-Stop Shop (IOSS) filing.
Merchants who choose to collect VAT on orders below €150 will need to register for the IOSS. They will then file a single monthly VAT return for all exports below €150 to the EU. Non-EU merchants opting to use IOSS may need to appoint a VAT intermediary.
For Merchants Registered in the EU
Ending distance selling thresholds rules.
Currently, EU Merchants must register for VAT once they meet thresholds set country by country (€10,000 for Germany €35,000 for France). On July 1st these thresholds will cease to apply and merchants will be required to charge the VAT rate of the buyer’s country of residence for all orders.
New EU-wide threshold for micro-businesses.
There is a new exemption for micro-businesses established in one EU country with sales no greater than €10,000 in each of the last two years. Merchants who qualify for this exemption can continue to charge the local VAT rate of the EU country where the shipment originates for all EU countries they ship to and continue remitting to their local tax authority.
One-Stop Shop (OSS) filing.
Merchants will now be able to utilize a single VAT return, known as an OSS filing, for multiple EU countries. This does not require individual registration for each country. The OSS can be used to file and remit VAT for any EU country they ship to, provided it is not their home country or a domestic supply in a country where they have a physical location or hold stock. For these noted countries, merchants should instead continue filing a local return. OSS simplifies the filing process and saves them from the trouble of registering in multiple countries. The merchant needs to submit an electronic quarterly VAT return via their domestic OSS portal and ensure they keep records for all eligible OSS sales for 10 years.
Shipping Options (Specific to the under €150 threshold)
There have traditionally been two options for international shipping when considering duties and taxes. These options have relied upon the carriers to play a role in the collection of Duties and Taxes either from the shipper or the recipient.
Delivered Duty Unpaid (DDU)- Any duties, taxes, and fees charged by the destination country are the responsibility of the recipient once the shipment has arrived in the country. This may also include a fee charged by the carrier on top of what was charged by the destination country.
Delivered Duty Paid (DDP)- Any duties, taxes, and fees charged by the destination country are charged to the shipper by the shipping carrier after they have been assessed during the customs clearance process. This may also include a fee charged by the carrier on top of what was charged by the destination country.
With the inception of the OSS and the IOSS the carrier’s role in the collection and remittance of these charges for shipments destined for the EU with a total value below €150 has been removed. If an OSS or IOSS number is electronically provided to the carrier when generating the shipping label the carrier and the destination country customs authority will take it to mean that the VAT has been collected and will be remitted back to the destination country via an OSS or IOSS filing. For the end customer, this will be the equivalent of a DDP experience, but the shipper will take on the responsibility of making payment to the tax authorities.
All merchants registered in the EU who register for an OSS number and all non-EU merchants who decide to register for an IOSS number will be required to include their registration number along with complete commercial invoice line item data to the carrier electronically for all shipments with a sale date of July 1st, 2021 or later following their registration for an OSS number or IOSS number.
For the non-EU merchants who decide not to register with the IOSS, the option remains as a choice between sending the package via DDU or DDP. With the changes in regulations, DHL eCommerce International will no longer be offering DDP services to EU countries. A breakdown of the availability of services by the carrier is below:
What happens with shipments over €150?
Nothing changes, those shipments will be processed through customs by the carrier and either the recipient or the shipper will be charged the duties and taxes based upon whether the package was shipped DDU or DDP.
How can I register for OSS/IOSS?
Each EU member state will have an online OSS/IOSS portal where you can register. This single registration will be valid for all sales to consumers in other EU member states where you don’t have a physical presence for OSS registrants and all sales to consumers in all EU member states for IOSS registrants.
In which EU country should I register for OSS/IOSS?
EU merchants must register in their country of establishment. Non-EU merchants may register in any of the member nations. Consult a tax professional to ensure you’re making the right choice for your business.
Why should I register for OSS as an EU merchant?
Registering for OSS simplifies the filing process and saves you from registering in multiple countries.
Why should I register for IOSS as a non-EU merchant selling into the EU?
For merchants who opt to collect VAT at checkout on low-value goods from buyers throughout the EU, IOSS will allow single return filing. Additionally, imported goods will likely be processed faster by the customs authorities. Without IOSS, shipments could be stopped at the border for valuation checks that may result in delivery delays and/or additional VAT assessments.
Does VAT apply to orders including tax or excluding tax?
The €150 threshold is exclusive of tax and is only for the value of goods (excluding transport and insurance costs, unless they are included in the price and not indicated separately on the invoice).
I am not sure how the recent EU VAT changes impact my business. What should I do?
If you are unsure of how these changes impact your business, you should consider contacting a tax consultant.
How can I get help to get VAT registered and file my VAT?
There are a number of tax companies that offer their services and some will also serve as your local intermediary for those companies located outside of the EU.
Is ShipMonk a marketplace or intermediary?
ShipMonk is neither a marketplace nor an intermediary.
Where can I learn more?