IOSS will be introduced on 1 July 2021 with the aim of simplifying the importation and customs process for e-commerce businesses importing low value goods into the European Union (EU). This will apply to those that make distance sales into the EU and online marketplaces that enable the sale of goods located outside the EU at the point of sale to EU consumers. Following the UK Exit from the EU from 1 January 2021, this is of particular relevance to UK e-commerce businesses selling goods to EU customers.
At present, goods valued up to €22 can be imported into the EU free from import VAT. However, under IOSS this relief will be withdrawn and shipments valued at €150 or less, excluding VAT, can be imported into the EU without being charged import VAT or customs duty.
Instead of import VAT, sales VAT would be charged by the seller, based on the VAT rate of the goods in the country in which they are sold. For example, if selling to a customer in Germany, VAT of 19% would apply. This should prove beneficial for the buyer, as it gives them some certainty on the VAT rate they can expect to be charged for their goods and removes the risk of any unexpected costs upon import and delivery.
The IOSS isn’t compulsory, so should a business decide not to register, Incoterms will need to be considered. This could result in an EU VAT registration obligation for the business in the countries it sells to, including paying the import VAT when the goods enter the EU. Alternatively, the customer may be required to pay the import VAT when the goods arrive in the EU, which may not be ideal from a commercial point of view. Accordingly, IOSS is likely to give significant commercial and operational benefits for businesses who meet the criteria.
Businesses that meet the criteria can register for IOSS in either an EU member state of their choice, or in the UK. Once registered, they will be required to submit a monthly IOSS return via the portal of the country of IOSS registration, which will record the total VAT payable and the VAT rate applicable for sales made in all EU member states. In addition, they will need to retain their IOSS records for ten years.
Conditions of entry
The following conditions will need to be met in respect of sales to qualify under IOSS:
The total consignment value must not exceed €150;
The goods sold into the EU must not be subject to excise duties, eg alcohol, tobacco; and
The goods must be dispatched or transported from outside of the EU at the time they are sold.
If goods are sold to EU consumers through an online marketplace, it’s the online marketplace that’s deemed to have made the sale and is liable for EU VAT. Therefore, the online marketplace will need to register for IOSS and account for EU VAT due on the sale. The business selling through the online marketplace will be making a zero-rated supply to the online marketplace and therefore isn’t required to register for IOSS.
Points to consider
It’s likely non-EU established businesses will need to appoint an EU-established intermediary to comply, and this intermediary will be jointly and severally liable for the payment of VAT under the IOSS. However, an intermediary isn’t required if the business is established in a country with which the EU has concluded an agreement on mutual assistance. Currently, Norway is the only jurisdiction which meets this condition, but it’s possible that similar agreements could be reached for countries such as the UK.
It’s also worth noting that businesses that import goods into the EU valued at more than €150 won’t be able to take advantage of the IOSS scheme. Consequently, the goods will be subject to import VAT upon entry to the EU member state, including the usual customs procedures and VAT registration requirements.
At the time of going to press, HMRC has confirmed that the UK IOSS registration portal won’t be ready for the ‘go live’ date of 1 July 2021, and further HMRC guidance is expected towards the end of June. Therefore, businesses keen to register for the scheme from its introduction will need to select an alternative jurisdiction to register in.
How we can help
PKF is a global network operating in over 150 countries across five regions. Our indirect tax experts across Europe specialise in providing high quality VAT advisory and compliance services to businesses that make distance sales into the EU. We have ample experience to advise and guide you on EU VAT requirements to ensure that your business is compliant, as well as recommend appropriate schemes to simplify your indirect tax reporting obligations.