As the eCommerce world continues to grow, cross-border trade has become an essential to being successful and growing your brand. However, with this growth comes the complexity of managing taxes and regulations across different territories. One of the biggest challenges for online sellers in the EU is handling VAT. The introduction of the IOSS scheme in 2021, has simplified the VAT compliance for eCommerce sellers.
In this blog, we’ll explore what the IOSS scheme is, how it works, and why it’s a relevant for online sellers looking to expand into the EU.
What is the IOSS Scheme?
The IOSS scheme, which came into effect on July 1, 2021, is part of a broader initiative by the European Union to modernize and simplify VAT collection on eCommerce sales. This initiative is called VIDA (VAT in the Digital Age) and is focused around reducing the VAT gap in the EU and making it easier for businesses to do business, by reducing the VAT compliance burden.
The IOSS simplifies VAT for online sellers by allowing them to declare and pay VAT for all sales into the EU via a single online portal. The key benefit is that sellers can use one VAT registration to handle VAT obligations for all EU countries.
The limitation to the scheme is that sellers can charge VAT at the point of sale for goods valued at €150 or less. The VAT is then paid directly to the tax authorities via the IOSS, streamlining the whole process for the seller and the customer. However, any orders where the value of the goods exceed €150 cannot be reported through the IOSS scheme, meaning the customer will have to pay taxes and duties when the goods get delivered into the EU.
How Does the IOSS Scheme Work?
To fully benefit from the IOSS scheme, sellers must follow a few key steps:
- Register for the IOSS
Non-EU Sellers wishing to use the IOSS scheme must first engage with an EU intermediary serviced provider to register them for the IOSS scheme. The registration process is extremely straight forward and IOSS numbers usually received within 2-3 working days once the application is submitted by the EU intermediary.
- Use the IOSS Number on Each Sale
Once registered, sellers are issued an IOSS number. This unique identifier is used to report VAT on sales made to customers in the EU, where the goods are shipped from outside the EU direct to consumers within the EU. For each transaction under €150, sellers must include this IOSS number in their customs declaration. This simplifies the import and shipping process, as VAT is already paid at the point of sale.
- Collect VAT at the Point of Sale
Sellers using the IOSS scheme must collect VAT from customers at the time of sale. Depending on what type of online store you are using, be it Shopify, WooCommerce, SHOPLINE etc. these platforms have tax calculation engines which can determine the correct VAT rate to charge at checkout.
For example, if you are selling a product to a customer in Germany, you will charge German VAT on that sale. If the customer is in France, French VAT will be applied.
- Submit VAT Returns via the IOSS Portal
The IOSS VAT filing and payment process involves submitting a monthly declaration. We recommend engaging with a trusted EU VAT intermediary platform, such as Taxmatic, which can fully automate your IOSS VAT return filing processes.
- Key Benefits of the IOSS Scheme for eCommerce Sellers
The introduction of the IOSS scheme offers several notable advantages for eCommerce sellers, especially those selling into multiple EU countries:
- Simplified VAT Reporting
The most significant benefit of the IOSS scheme is the simplification of VAT reporting. Filing VAT returns through a single IOSS portal, saving time, reducing errors, and simplifying the overall compliance process.
- Faster Customs Clearance
Customs clearance is faster and more efficient under the IOSS scheme. By paying VAT upfront at the point of sale, sellers can avoid customs delays and ensure that goods are delivered to customers without unnecessary hold-ups at borders.
- Improved Customer Experience
Since VAT is included in the price at the point of sale, customers no longer have to deal with unexpected tax charges when their goods get delivered. This improves the overall shopping experience, as customers are more likely to purchase from sellers who have transparent and clear pricing.
- Access to a Larger Market
The simplification of VAT collection and customs processes opens up new opportunities for eCommerce sellers. By streamlining VAT compliance, the IOSS scheme makes it easier for sellers from outside the EU to enter the EU market and compete effectively with local businesses.
Conclusion
The IOSS scheme is a revolutionary step forward for eCommerce sellers selling to customers in the EU. By simplifying VAT collection and customs procedures for low-value goods, it saves sellers time, reduces complexity, and enhances the customer experience. The scheme makes it easier for businesses to access the EU market and comply with VAT regulations without having to deal with the burdens of managing VAT in multiple countries.
As an automated VAT platform provider, Taxmatic offer solutions that can help you easily navigate the IOSS scheme and ensure VAT compliance with minimal effort. Our platform automates the VAT filing and payment process, freeing you up to focus on growing your online business.
