VAT IOSS by the examples - registration and use of the special VAT settlement procedure for imported goods
Entrepreneurs who are suppliers of goods, operators of the electronic interface will learn a new special procedure of VAT settlement on the sale of goods imported remotely. Like most tax news, this procedure raises many doubts.
How does it work, who specifically can use it, who can register, what is a special IOSS VAT identification number? These and many other questions are answered in this publication.
Legal framework for extensive changes in the field of VAT on mail order sales
On July 1, 2021, the import of all goods is already subject to VAT. Third country taxpayers selling by mail order within the EU are required to register as value added tax (VAT) taxpayers in each EU country to which mail order sales are made. However, there is another possibility. The taxpayer can use the so-called procedures of the one-stop shop for import, hereinafter referred to as VAT IOSS.
The introduction of the IOSS VAT procedure enabling VAT settlement without the obligation to register for VAT in all EU countries of consumption is based on the following legal framework:
- Council Directive (EU) 2019/1995 of November 21, 2019 amending Directive 2006/112 / EC as regards provisions on distance sales of goods and certain domestic supplies of goods (hereinafter referred to as EU Directive 2019/1995);
- Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112 / EC and Directive 2009/132 / EC as regards certain value added tax obligations for the provision of services and distance sales of goods (referred to as hereinafter EU Directive 2017/2455);
- Council Implementing Regulation (EU) 2019/2026 of 21 November 2019 amending Implementing Regulation (EU) No 282/2011 as regards the supply of goods or the provision of services facilitated by the use of electronic interfaces and with regard to specific schemes for taxable persons who provide services to non-taxable persons, they sell goods at a distance and carry out certain domestic supplies of goods (hereinafter referred to as EU Regulation 2019/2026).
What is the IOSS VAT procedure?
The special VAT IOSS procedure allows the supplier (or the operator of the electronic interface, the so-called entity facilitating the delivery, identified as the supplier) to simplify the settlement of VAT in the so-called one one-stop shop (VAT registration and settlement in one EU country, but at different VAT rates for EU countries of consumption). However, this is not the end of the most important advantages.
In the VAT IOSS procedure, the seller, the operator of the electronic interface - identified as the entity making the delivery, will declare all SOTI transactions on a monthly basis, will collect VAT from the buyer (according to the VAT rates of the EU country of consumption) at the time of sale of the goods under the SOTI transaction, and the tax due itself The VAT will pay in one EU country of identification (registration for the IOSS VAT procedure).
An extremely important issue is that taxpayers can register for the special VAT IOSS procedure from the very first transaction. This means that the special VAT IOSS procedure does not have a minimum limit or turnover limit enabling VAT settlement for SOTI transactions through it.
This procedure definitely facilitates the planning of transport of the goods sold, because these goods can be released for free circulation in the EU in any EU country, and not as it is in the standard procedure of importing goods into the EU (goods shipped or transported from the territory of third countries to the territory of the EU first are subject to release for free circulation in the EU customs territory in one EU country, and are then dispatched or transported to the EU country of consumption).
Goods that are sold by the supplier using VAT settlement according to the IOSS VAT procedure are to be subject to faster exemption at customs clearance. The result is a shorter delivery time to the final recipient.
On the other hand, the final buyer who purchases goods, e.g. on a trading platform, can view and purchase a given product at the final price. He no longer has to think about the amount of VAT.
It is worth noting that the VAT IOSS procedure can also be used by taxpayers who have their registered office in one of the EU Member States and sell low-value goods - imported from third countries into the territory of the EU.
Settlement of VAT under the special VAT IOSS procedure applies only to the supply of goods imported from third countries with an actual value not exceeding EUR 150.
The entrepreneur runs a business in Ukraine. It sells goods with an actual value not exceeding 150 EUR by mail order. The target sales area is Poland and Germany. The seller carries out the sale through his own online store. How can he account for VAT on a given sale?
If the taxpayer fails to register for the IOSS VAT procedure, then he will be obliged to register as an active VAT taxpayer both in Poland and in Germany. However, buyers from these countries will be required to pay VAT. Only after payment will they receive the goods.
It should be emphasized that sellers often use the services of customs agencies, customs representatives to complete customs formalities for them and organize further transport of goods. In such a case, the final recipient may be exposed, apart from import VAT, to additional transport or other costs. But what if the entrepreneur decides to register for a special VAT settlement procedure, i.e. VAT IOSS? The solution to this issue is presented in the next practical example.
The entrepreneur from the previous example wonders if and when he can register for the specific VAT IOSS procedure.
This registration is voluntary. There is also no trading limit that determines it.
The main issue in registering for the specific VAT IOSS procedure is the appointment of an intermediary. It is in the EU country of the intermediary's seat that registration for the VAT IOSS procedure will be made. The entrepreneur will receive a special identification number from the tax administration (from the country of the intermediary's EU seat) via the intermediary in electronic form for the purposes of VAT IOSS settlement. This number will be provided by the entrepreneur when submitting the IOSS VAT settlement declaration, to customs agencies (representatives) when completing customs formalities, for customs authorities (declaring goods for circulation in the EU) or to carriers.
The seller, carrying out mail order sales to Poland or Germany, at the time of its performance, will charge the final buyer with the appropriate VAT rate (for the given goods in the EU country of consumption - the buyer). The declaration of the goods (along with the specification of the seller's IOSS identification number for the purposes of VAT IOSS) for release for free circulation in the EU by the person responsible for this activity causes that the customs authorities, when importing the goods, using the seller's VAT IOSS identification number, will not impose VAT on the given import.
The intermediary will be required to submit a monthly special declaration of distance sales of imported goods under the VAT IOSS procedure (goods with low real value up to EUR 150) by the end of the month following the month of sale.
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Who can register for VAT settlement under the IOSS VAT procedure?
Not everyone will be entitled to register and use the IOSS VAT procedure for VAT settlements of goods shipped from third countries to the EU. Entities entitled to use the IOSS VAT procedure:
- are based in the EU and make distance sales of goods imported from third territories or third countries (SOTI), or
- are identified as electronic interface operators - entities facilitating a SOTI transaction with an actual value of goods up to EUR 150 (with and without a seat in the EU and represented by an intermediary established in the EU), or
- they make distance sales of goods imported from third territories or third countries (SOTI) and are not established in the EU, but are represented in the EU by an intermediary established in the EU, or
- they make distance sales of goods imported from third territories or third countries (SOTI) with which the Union has concluded an agreement on mutual assistance in the field of VAT settlement according to the IOSS VAT procedure,
- electronic interface operators - SOTI facilitators with an actual value of goods up to EUR 150.
The entrepreneur runs a business in Russia and sells toys by mail order with an actual value not exceeding 150 EUR. The target area of sales is the territory of the EU. The seller sells toys only through the sales platform (electronic interface operator). How will the change in regulations affect the sales made by this entrepreneur?
In light of the changes from 1 July 2021 contained in the above-mentioned In the directives and regulations, the seller in the circumstances in question is perceived as having handed over the goods to the operator of the electronic interface, while the operator is identified as the supplier of the goods. As a result, the operator is required to settle VAT on a given transaction. As a result, it charges VAT at the correct VAT rate and collects it from the final recipient.
The specificity of registration for individual groups of entities with their registered office in the EU and outside the EU is presented in the table below.
Electronic interface vendors and operators registering for the specific VAT IOSS procedure
Taxpayer established in the EU:
Taxpayer established outside the EU - represented by an intermediary:
A taxpayer established outside the EU in a third country with which the EU has a signed agreement on mutual assistance in settling VAT when selling goods by mail order:
A delivery facilitator (IE operator) established in the EU:
Delivery facilitator (IE operator) based outside the EU - represented by an intermediary:
The entity facilitating the delivery (IE operator) based outside the EU in a third country with which the EU has a signed agreement on mutual assistance in the settlement of VAT on the sale of imported goods at a distance:
Extremely important identification number for the use of the IOSS VAT procedure
The seller, operator of the electronic interface or intermediary (entities recognized as facilitating the delivery of goods) acting on behalf of these entities after registration to use the VAT IOSS procedure will receive an electronically unique identification number (not to be confused with the tax identification number) from the tax administration of the EU country identifying the seller, operator or broker. The IOSS VAT identification number is used only for the handling of the SOTI, where VAT is settled using the IOSS VAT. Therefore, the entity that qualifies for registration for the VAT OSS procedure and will do so, will receive a separate identification number related to the VAT OSS.
Interestingly, each of the above entities will receive one such number when registering for the IOSS VAT procedure, except for the broker who will receive one number assigned to one represented taxpayer.
It is very important that the above-mentioned entities transfer the IOSS VAT identification number to other entities. It is worth providing this number only to entities necessary for the implementation of SOTI, that is:
- the seller transfers the IOSS VAT identification number to an operator who does not have such a number;
- the seller or operator with an IOSS VAT identification number passes it on to the customs authorities already carrying out the relevant customs activities;
- the seller or operator with the IOSS VAT identification number forwards it to the customs agency or the person responsible for declaring the goods for circulation in the EU;
- the seller or operator with an IOSS VAT identification number transfers it to postal operators, couriers or other entities responsible for the shipment, transport of goods;
- an intermediary acting on behalf of a seller or operator holding an IOSS VAT identification number transfers it to the customs authorities, customs agency or the person responsible for declaring the goods for circulation in the EU, postal operators, couriers or other entities responsible for the shipment, transport of the goods.
It is worth noting that customs authorities throughout the EU should now have access to a database containing all registered taxpayer identification numbers for special procedures.
This tool works in such a way that when the customs authority checks the identification number and it is valid, and the actual value of the shipment does not exceed EUR 150, then the customs office will not collect VAT at this stage of the SOTI transaction. In addition, the goods will be released much faster for further shipment or transport to the final recipient.
What is very important, in the event of a change of identification numbers (receiving a new one), the seller, operator, broker should always use only the currently valid number. The IOSS VAT identification number, which the entity first received, will be valid for 2 months after the event causing the assignment of a new (second number) - e.g. change of the EU country of identification of the entity.
The electronic interface operator is registered for the use of the IOSS VAT procedure through an intermediary in Germany. He participates in the SOTI transaction, i.e. the sale of goods from China to buyers in Germany. IOSS received its first VAT identification number from the tax administration in Germany on August 1, 2021. Recently, on September 27, he made a transaction for the sale of goods, which, including customs and transport, will be at the buyer's at the end of October 2021.
However, on October 1, 2021, the operator will change the EU country of identification to France in connection with the continued use of the VAT IOSS procedure. The IOSS VAT identification number used for goods sold before October 1, 2021 and delivered after the date of receipt of the new number is still the first number. Will this adversely affect customs operations and the subsequent transport of these goods?
The IOSS VAT identification number obtained for the first time will in this case be valid until the end of November 2021. It can be used until the end of this period. In this situation, the first number was valid on the day of the transaction - September 27, 2021.
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Misuse of the IOSS VAT identification number
As mentioned above, the entity implementing the SOTI must be careful to whom it transmits the IOSS VAT identification number and limit this activity only to the necessary entities participating in the transaction.
In the case of the seller, he may communicate his number to the customs authorities himself when making the declaration of goods for free circulation to the customs authorities. However, if the operator declaring the goods to the customs authorities on behalf of the responsible vendor, the vendor must provide the operator with his number.
It is not possible to use the VAT IOSS procedure and make a customs declaration of goods without providing the IOSS VAT identification number.
The EU Council is working on the possibility of direct transfer of IOSS VAT identification numbers from suppliers, operators to customs.
It should be emphasized that if the seller runs his own online store through which he sells goods imported from third countries to the EU (registered for VAT settlement according to the IOSS VAT procedure), and also uses the services of an electronic interface operator not registered for the IOSS VAT procedure - the seller must be careful not to provide your own IOSS VAT identification number when selling via the electronic interface operator.
Therefore, entities providing the IOSS VAT identification number will have to be very careful to use it correctly, to provide a correct and valid number.
As a reminder - Customs have a list of all valid IOSS VAT identification numbers. They also have access to monthly reports showing the value of all reported goods for a specific (valid) IOSS VAT identification number. Therefore, they have the possibility of comparing the value of the goods with those reported by the declarant and assigning them to a valid IOSS VAT identification number.
Incorrect use of the IOSS VAT identification number may lead to the tax administration in the EU country of identification asking the supplier to pay, for example, a higher amount of VAT due.