Quick intro to VAT
VAT, short for Value-Added Tax, is a tax applied to goods and services as a percentage of the price sold to a consumer. You charge it to the consumer and later pay the VAT collected to a tax authority.
Most goods and services are standard rated and attract a tax rate of around 20%, although the exact amount varies by country. Some goods are zero-rated or reduced-rate, and the tax treatment of goods also varies by country.
You are able to reclaim the VAT that you have paid to get the goods or services to your consumer, hence why the tax is called ‘value-added’, because the net VAT cost you pay is based on the difference in value between the cost of the goods or service to you versus the cost to the consumer.
You can see a more in-depth guide in our post on how VAT works for online sellers.
VAT rules in the EU changed significantly 1 Jul 2021, most importantly with the introduction of the One-Stop-Shop (OSS) schemes, which is a way to register and do VAT returns for multiple EU countries in one go.
Types of EU VAT registration and when they apply
There are two types of VAT registration: a local country registration in a specific country or a One-Stop-Shop (OSS) registration. Which type you choose, or are required to use, depends on where your business is established, who you sell to, and how you sell.
If you’re looking for UK VAT registration, follow our guide here: https://www.ecommerceaccountants.co.uk/post/how-to-register-for-uk-vat
Local EU VAT registration
If you have VAT obligations in the EU, then at least one local VAT registration is required, either as a prerequisite to access the OSS or because you store goods in an EU country, in which case, a registration is required for all those countries where goods are physically stored.
Local EU VAT returns are filed monthly, quarterly or annually, depending on the filing rules of the associated country. The application and return will be in the local language, and country-specific rules apply. Some countries will require you to have a fiscal representative.
One-Stop-Shop (OSS) registration
The One-Stop-Shop was introduced in July 2021 to make it simpler for businesses to meet their EU VAT obligations, by providing a way to declare and pay VAT to all EU countries in one return.
- Registration for the scheme is optional
- It is for B2C cross-border transactions only
- B2B and local B2C transactions, and intra-EU transfers still need to be reported on a local VAT return
The OSS scheme is voluntary
This is important. The OSS schemes may not be beneficial for everyone, so make sure you understand how using local registrations may compare for your business in terms of time and cost.
B2C and B2B transactions on the OSS schemes
The OSS schemes are for declaring transactions to consumers and not to businesses. Here, the distinction between a consumer is whether the person you are selling to has an EU VAT number.
Cross-border sales (or intra-community supplies) means sales from one EU state to another. For example, if you ship from Germany to a German consumer, this is considered a domestic supply and cannot be declared on your OSS return. Instead, it has to be reported on your German VAT return.
Which OSS scheme should you use?
There are three different schemes, depending on if you are an EU or non-EU business, and the types of transactions you do:
- Non-Union OSS scheme
- Union OSS scheme
- Import OSS scheme
For an EU business, that means that you may register for one or two schemes. A non-EU business may decide to register for all three.
VAT registration and sales exemptions
There are cases where you may be exempted from the need to VAT register if you meet certain conditions or are below selling thresholds. We outline the key exemptions that can apply.
EU distance sales threshold
If you are an EU (or Northern Ireland) business, you enjoy a distance selling threshold of €10,000 (or £8,818) when selling to other EU countries.
Below this threshold, you charge the customer the VAT rate of the country you are established in. Above this threshold, you must charge the VAT rate of the customer’s country, which means you need to complete VAT returns in the customer’s country or register for OSS.
Importing goods to the EU up to €150
It is important to understand that using the IOSS scheme to pay VAT for low-value goods (defined as up to €150/£135 since July 2021) is optional. As a seller, you can alternatively choose to:
- pay the import yourself / ship Delivery Duty Paid (DDP)
- let the shopper pay the import VAT / ship Delivery Duty Unpaid (DUP)
This option is referred to by the EU as the Special Arrangements and is facilitated by your shipping provider.
If you choose to ship DDP, you will arrange this service with your shipping provider who will charge you the VAT and a fee for running this service for you. If you ship DUP, the customer’s goods will be held up in customs on arrival and they will receive an invoice with import VAT and duties they must settle for the goods to be released.
For most businesses, using the IOSS is the most cost-effective option. However, if you already sell consignments valued above €150, you may already have an established process with your shipping partner which you wish to continue to use. With shipping DUP, the cost to the business is the lower customer buying experience and delivery time.
Importing goods to the EU valued at more than €150
Goods shipped to a customer where the goods are shipped from outside of the EU are not handled on a VAT return. Instead, you pay import VAT and it is your choice to ship DDP or DUP.
Sales on Amazon and other marketplaces and deemed suppliers
Some marketplaces are considered deemed suppliers by the EU, e.g. Amazon or Etsy. Special rules apply to your sales on these marketplaces and mean that certain of your B2C sales will be reported by the marketplace instead of you.
Reporting responsibility in the EU based on transaction type
We have summarised which transactions you need to report as the seller (also known as the underlying supplier) and which transactions your marketplace (also known as the deemed supplier) will report.
Which platforms are deemed suppliers?
Platforms such as Amazon, Etsy, eBay, AliExpress, are all currently deemed suppliers and will collect VAT on:
- Goods shipped to EU (or UK) consumers, with a parcel value of up to €150 (or £135).
- Goods of any value sold by a non-EU seller which were stored in the EU.
Platforms which are essentially websites or store fronts only, such as Shopify, BigCommerce, WooCommerce, Magento, etc. are not currently deemed suppliers, meaning you are fully responsible for all sales on these platforms.
How to register for EU VAT, OSS or IOSS
To obtain a local VAT registration, you apply directly to the tax authority in the country you need to register. Applications are offered only in the local language, so you will normally engage a local agent. In some countries you will need to appoint a fiscal representative.
To register for OSS, if you are an EU business, you will register in the country in which you are established. If you are a non-EU business you will have a choice and most will register in whichever country you hold stock in; most English-speaking businesses will opt to register in Ireland.
For IOSS you will need to appoint an intermediary who can register for you and file returns on your behalf.
Depending on your needs, we can handle the above for you or point you in the direction of a specialist provider.
How long does it take to get a VAT registration?
A local VAT registration can take anywhere from 2-14 weeks. For a non-EU business, the process is slightly longer and tends to take at a minimum 8 weeks.
Registering for the OSS scheme takes between 1-2 weeks, assuming that you already have a local VAT registration already, which is required..
Get help registering for EU VAT or understanding the rules
We understand that these EU VAT is complex and that there can be significant financial and time cost sunk into complying with these rules.
Here at Ecommerce Accountants, we’ve been working around the implications of EU VAT for years. Check out one of our older blog posts Thinking about EU VAT to see how things have developed.
If you would like us to help you understand how the rules apply to you and be your one point of contact for all your UK accounting and VAT needs, as well as your VAT registrations and returns in the EU, get in touch.
For most sellers, we can reduce your workload to the minimum, which is you providing us with your import statements and any VAT invoices to reclaim, and making the VAT payment associated with each filed return. We will figure out which is the most beneficial scheme for you and handle all of your UK and EU sales data.