EU E-Commerce VAT Package FAQs: Understanding IOSS and Imports

This blog was last updated on October 6, 2021

The EU e-commerce VAT Package is here. The new schemes, One Stop Shop (OSS) and Import One Stop Shop (IOSS) bring significant changes to VAT treatment and reporting mechanisms for sales to private individuals in the EU.

Sovos recently held a webinar on Back to Basics: The EU VAT E-Commerce Package. There were a number of questions asked in the webinar, so we’ve pulled together these FAQs, and the answers.

In previous blogs, we looked at understanding marketplace liability and understanding OSS. Here, we look at understanding IOSS and imports.

Q: Can you do IOSS through Northern Ireland?

HMRC have stated that it will allow IOSS submissions via the UK. However, at this stage this is technically not possible as the functionality is not ready yet. Therefore, unless this changes, we would recommend seeking an IOSS registration elsewhere.

Q: Should EU EORI numbers be kept confidential as well as IOSS?

When it comes to IOSS numbers this is a new scheme and teething issues are to be expected. Therefore, it‘s advisable that IOSS identification is used only as per the requirements, meaning it should be used and referred where it is legally required.

The same approach could be applied towards EORI numbers, although the EU EORI database does provide the option for taxpayers to have their details published on the online EORI validator. Currently, this is a choice, and your details can be published only with your permission.

Q: Can you use the 13th Directive if you’re importing/trading goods into the EU? Do the usual conditions apply and would a B2B sale to the EU satisfy these criteria?

This highly depends on the way your liabilities are determined in terms of importation and subsequent supplies. Normally, the 13th VAT Directive would apply when a non-EU business incurs input VAT in an EU Member State but for some reason it is not required and cannot register for VAT purposes there. This restriction might occur due to application of the extended reverse charge where the non-EU established business does conduct a subsequent transaction but isn’t liable to account for it and instead the recipient must account both for the output and input VAT.

It must be noted that this applies to B2B supplies where the reverse charge is used in several EU Member States.

However, outside the context of the IOSS scheme, when it comes to a subsequent B2C supply, if the supplier imported the goods under its own name, then the subsequent supply B2C sale would trigger an obligation for registration, which means any input VAT in that country is to be deducted through the resident periodic VAT return.

Alternatively, if a non-EU established business has made use of the IOSS scheme then the 13th VAT Directive would be the option to claim back input VAT incurred on purchases in the EU. Please note that this would not include input VAT as a result of returned goods as this can normally be reflected on the monthly IOSS return by reducing the tax base respectively.

Q: If a seller pays at the customs point the import VAT and the customs duty on behalf of the customer, is the client the importer of the record?

It’s important to distinguish between importer of record from a VAT perspective and customs perspective. From VAT point, this would be the person liable for the payment of import VAT and from a customs perspective it would be the customs debtor; that is normally the person that lodges the customs declaration (the declarant). These are not necessarily the same person.

Therefore, the importer of record from a VAT perspective would normally be the consignee listed on the import declaration and the importer from a customs perspective would be the declarant who is identified in a different box in the same declaration.

If a seller pays the import VAT and customs duties on behalf of the client but isn’t listed as a consignee then this would be an issue regarding the deduction of the import VAT since the supplier will not be able to provide relevant proof that they were the person that was initially liable for the import VAT. And normally, the person who has the right to deduct import VAT is the person who was liable to pay it.

Q: If a UK seller is selling services to the EU, do they need to register for Non-Union OSS and report these services? Can all the services like restaurant and catering, intermediary, property, transport etc., be included in the Non-Union OSS scheme or only digital services? Also, can the VAT be collected at the checkout?

With the new Non-Union OSS scheme, the scope of services that was originally covered by the MOSS scheme has been widened to most types of B2C services. Therefore, it would be possible for a business to register for Non-Union OSS and report these sales under the scheme.

However, it’s important to note that this is not an obligation but an option for the UK taxpayer. It’s advisable to make a decision on whether to use the mechanism or not based on the specific situation, the expected supplies, the number of countries to be affected etc.

For example, often B2C services like admission to events, restaurant and catering are related to substantial amounts of input VAT generated by local purchases and therefore some businesses may prefer the regular VAT registration which allows them to deduct the VAT through the VAT return instead of using the 13th VAT Directive claims (in the cases where the suppliers are non-EU established).

The latter would be the case if the Non-Union scheme is applied as input VAT on purchases will not be deductible through the OSS return.