By Anna Higgins, Strategy Programs Director at Sovos
Black Friday and the lead up to the festive period present another welcome opportunity for retailers to drive ecommerce sales, and boost revenue.
Retailers work hard to prepare the best deals to entice shoppers, but do you know where you stand with VAT compliance?
With the new EU E-Commerce VAT Package now in effect, this year retailers can account for VAT on increased Christmas sales in the EU in just one single return.
The ecommerce package is a simplification, saving businesses valuable time and money. However, there are additional data requirements that can create significant issues if not managed appropriately.
What is the EU E-Commerce VAT Package?
The introduction of the EU Ecommerce VAT Package changed the VAT rules for intra-EU business to consumer (B2C) supplies of goods and imports of low value goods. Since July 2021, all goods imported into the EU, regardless of value, are subject to VAT.
It also introduced new methods of accounting for VAT by extending the existing Mini One Stop Shop (MOSS) into a much wider ranging One Stop Shop. As a result, businesses can now use one or more of three schemes to account and pay for VAT in one single return to all EU tax authorities:
- The Import One Stop Shop (IOSS): for goods under €150 shipped from outside the EU
- The One Stop Shop (OSS): for intra-EU B2C deliveries of goods and for intra-EU services provided B2C
- The Non-Union One Stop Shop (non-Union OSS): which replaces and extends the current non-Union MOSS
Each scheme has its own requirements and the impact of the schemes will vary depending on your business model and current VAT registration model so you need to make sure you understand your VAT obligations and remain complaint. Where online marketplaces are involved in the sale, where goods are shipped from outside of the EU, they may become liable to account for the VAT instead of the underlying supplier. In many cases, OSS represents a significant simplification in VAT reporting as you no longer need to register in each Member State where you trade and have VAT obligations. IOSS also provides an opportunity to streamline your customer experience when selling from outside the EU, avoiding delays caused by customs clearance. It enables businesses to collect VAT at the point of sale and make the payment to the tax authority in a single monthly amount, removing the need to pay individual tax authorities at the time of import.
Getting VAT ready for the festive period: Registering for an OSS scheme
The build up to the festive period and the January sales will drive e-commerce sales throughout the EU. It’s one of the busiest times for ecommerce, with retailers seeing some of the highest volume and value of orders over the period. As a result, many EU businesses selling into other EU countries will breach the single EU-wide threshold of €10,000. Businesses selling imported goods could face VAT obligations in multiple EU countries and need to understand the correct process for goods valued both under and over €150.
Registering for an OSS scheme will help to get VAT compliance right on sales and reduce the compliance burden.
Fully understanding OSS scheme requirements is complex. Businesses considering using these simplifications need to identify their flows to determine which scheme(s) apply and what other registrations will be required. This will depend on where the goods originate – EU or non-EU, where you have warehouses and whether you sell via platforms.
Questions for retailers to consider include:
- How will I separate out B2B sales?
- How will I identify excise goods within a consignment?
- How will I calculate the ‘intrinsic’ value of a consignment?
- How will I deal with all VAT rates in 27 Member States?
- What will I do where a consignment from outside the EU exceeds the €150 threshold?
- If I sell via a platform how do I determine marketplace liability?
- How do I know if I am considered an “electronic interface” and therefore liable for sales of third-party goods on my platform?
- How will I prepare the electronic transaction file?
Not getting the data requirements right can result in the EU excluding a business from the OSS schemes. This ban lasts two years and the taxpayer would need to register for VAT in all relevant Member States. During this time, VAT compliance costs are likely to increase, and new VAT numbers will be required urgently.
VAT checklist for the festive period
Below are some key VAT compliance considerations for retailers for the festive period and beyond.
- Review your delivery destinations – are you shipping to all Member States or just some of the EU? You’ll need to think about how you comply with your VAT obligations
- Consider the customer experience – do you want the goods to clear if you’re importing them and do you want them to clear and arrive at your customers’ doorsteps without the need to pay additional VAT without suffering delays? Or is another model suitable for your business?
- Review your existing VAT registration profile – is it sufficient to cover all the countries you sell to already?
- Obtain the relevant OSS/IOSS registration – what steps do you need to take if you want to register your business for an OSS scheme?
- Appoint an intermediary – is this a requirement for your business? This is essential for most non-EU businesses utilising IOSS
- Calculate appropriate VAT rate – consider which products may benefit from reduced rates and understand the various VAT rates across the different Member States
- Consider data extraction for VAT reporting – do you have a full understanding of the data required by the tax authorities and how will you extract this from your systems?
- Clarify arrangements with your logistics provider – we understand that not all shippers are up to speed with the new requirements for IOSS so it’s important to ensure you outline to your shipping agency how to clear goods in line with your preferences to avoid double taxation
It’s still early days for the EU VAT ecommerce VAT package and initial teething problems are to be expected.
Even though the aim of the package was to simplify VAT reporting requirements for sellers and improve the tax take for Member States, one thing is certain: navigating these new VAT schemes can be complex. Implementing the changes required to comply can take significant time and resources, and businesses should seek advice to prepare for, and understand, the right solution for their company.