The EU Commission’s VAT in the Digital Age proposals include a single VAT registration to ease cross-border trade.

Due to enter into force on 1 January 2025, the proposals are part of the commission’s initiative to modernise VAT in the EU. The single VAT registration proposals would mean only registering for VAT once across the EU under a wider number of in-scope transactions, reducing VAT administration costs and time.

B2C implications of the single VAT registration

The One Stop Shop (OSS) is a pan-EU single VAT registration. While optional, it can be used to report and pay the VAT due on Business to Consumer (B2C) distance sales of goods and B2C intra-community supplies of services in all EU Member States.

The scheme has been well-received and implemented by many companies. There are discussions of broadening the scheme to further simplify VAT in the region.

To further modernise the EU VAT system, the Commission has proposed an expansion of the OSS scheme for e-commerce to include:

Implications for online platforms selling into the EU

Despite rumours of altering the Import One Stop Shop (IOSS) threshold, the current EUR 150 consignment threshold for imported B2C sales will remain for the foreseeable future. The scheme will also stay optional for businesses.

However, IOSS will become mandatory for platforms facilitating non-EU distance sales of goods under EUR 150 for low value consignments. The EU will enhance the security of IOSS by granting EU customs authorities access to information about IOSS-registered businesses.

B2B implications of the single VAT registration

Regarding Business to Business (B2B) supplies, the EU Commission wants to harmonise the application of the extended reverse charge in article 194 of the EU VAT Directive. When implemented in the EU Member State, it applies to non-resident suppliers and reduces their obligation to register in a foreign country for VAT purposes.

Currently, only 15 EU Member States apply the article mentioned above – and not all in the same way.

Introduction of the new mandatory B2B reverse charge will be for certain sales of goods and services if transactions meet the following conditions:

Finally, the EU will abolish provisions in the VAT Directive regarding call-off stock arrangements from 31 December 2024. Beyond this date, new stock transfers under those arrangements cannot be affected as the simplification will not be needed. However, goods supplied under pre-existing arrangements can continue with the regime until 31 December 2025.

Are you equipped to tackle ever-evolving regulations?

In the past year, the Greek tax authority published a series of legislative acts introducing new requirements (the QR code and prefilling of VAT returns) and amending existing ones. It’s been more than three years since the rollout of myDATA as a voluntary scheme, but the system is far from complete.

myDATA is a broad and multi-faceted project covering multiple areas of compliance, ranging from e-invoicing to e-accounting and e-bookkeeping. The system, being quite complex, is still largely under development, technically and legislatively, and prescribed deadlines keep receiving push-back from businesses not ready to comply in time.

myDATA Deadlines Postponed

In response to continuous feedback from businesses and accountants the tax authority more than once has relaxed requirements, offered grace periods and imposed no associated penalties so far (except certain petty fines for 2021 related to recapitulative statements).

One of the latest amendments is the second postponement of transmission deadlines for certain, mainly historical, data which ought to have been reported in the past two years. The Ministry of Finance jointly announced a press release with the head of the IAPR and published a Decision amending the myDATA law (L. 1138/2020). The deadlines for transmitting certain data generated in 2021, 2022 and 2023 are postponed, giving businesses more time to collect and transmit data according to the myDATA specifications.

myDATA reporting deadlines 2023

For 2023, the obligations pertain to the transmission of historical data which took place in the last two years. Current data generated in 2023 may be transmitted within certain deadlines in 2024.

myDATA reporting deadlines 2024

For 2024, the obligation pertains to upcoming data which take place in 2024. Current data generated in 2023 may be transmitted within certain deadlines in 2024.

myDATA next steps

The tax authority’s intention with these changes is to provide more time for businesses who haven’t complied with the previous transmission deadlines to report the required data to myDATA. However, starting from January 2024 the tax authority is expecting businesses to comply with the required deadlines without providing a grace period, at least as of yet.

Certain major aspects of the myDATA system have been the center of much discussion among businesses, accountants and the authorities. This includes mandatory reporting of expense data and any penalties relating to 2022 and onwards which are currently left unregulated. However, the tax authority has announced that a decision regarding the penalties will be published in the next months.

Despite how common VAT is, the tax is difficult at the best of times to understand. Knowing who pays VAT – the buyer or the seller – is straightforward, though, if you take the time to learn about the tax or have help.

With this specific blog, we explain who collects VAT and what governments expect of businesses. For questions around the EU VAT eCommerce package read this comprehensive guide.

How VAT works – a quick explanation

VAT is a tax collected as goods and services move through a supply chain. In other words, manufacturers, distributors and retailers collect VAT as an item or service makes its way to a final consumer.

Similar to VAT, GST sees tax authorities levy GST (Goods and Services Tax) on goods and services sold for domestic consumption. Consumers pay GST, and businesses remit it to the government.

Both GST and VAT share characteristics but have different names. How they work depends on the country and local legislation. For example, the EU has specific VAT compliance requirements as our free guide outlines.

Who pays VAT, the buyer or seller?

Let’s start with a seller. Sellers collect VAT by adding the tax to the selling price.

The VAT charged by the seller is ‘output tax’. Sellers report this to the local tax authority on behalf of the buyer. The VAT paid by the buyer is ‘input tax’. The buyer can credit this against the VAT they charge.

In certain scenarios, VAT can be instead reported and remitted by the buyer. This is a ‘reverse charge’.

Differences between Sales Tax and VAT

The main differences between Sales Tax and VAT are who pays tax to the local governments and when.

VAT and Sales Tax occur at different stages in the production chain. As a tax authority, you levy Sales Tax on retail purchases of goods or services. You impose VAT on each step of the production process.

The challenge with Sales Tax is that tax authorities have no record of transactions to verify retailers’ tax payments. However, with VAT, the chain of transactions and credits creates a natural audit trail due to the cross-reporting between businesses.

The government can issue fines if tax authorities detect errors through an audit.

How does VAT work?

Usually, VAT is charged at the same flat rate across the board. This is set by a national government. However, other rates – such as a zero rate – can apply to specific supplies like children’s clothes and food.

Supplies such as financial and property transactions can also be exempt from VAT – in which case, no VAT is chargeable, nor can the related VAT be recovered by businesses.

Local legislation defines whether additional information is required. Simplified and retailer invoices are allowed in some circumstances.

VAT encourages everyone in the production chain to maintain documentation for all transactions, making each subject accountable for their amount of revenue and compliance with tax laws.

This becomes particularly important when a business wants to reclaim VAT, as they will be required to produce evidence that the tax was incurred in the first place.

Responsibilities as a VAT registered business

Businesses will document and report the VAT paid to their suppliers and the VAT collected on their sales. To claim a VAT credit, businesses must keep proof of the VAT incurred, such as purchase invoices and import documents.

Not all businesses may need to register for VAT. Some circumstances may trigger a VAT registration. These include:

In certain circumstances, it’s possible to register for VAT voluntarily, with the main benefit being the ability to recover the input VAT incurred on purchases.

Registered businesses file periodic VAT returns in respect of each prescribed accounting period. The format and frequency may vary from country to country.

Registered businesses also keep VAT records, charge the right amount of VAT to their supplies, submit VAT returns, and pay any VAT due in a timely manner.

What triggers the tax administration requirement?

There are specific triggers that could prompt queries from the tax office. Usually, these are changes in the company’s status – such as a new registration, a de-registration, or structural changes. VAT refund requests also fall into this category.

Due to their structure and business model, certain businesses are naturally subject to audits. Groups commonly selected for scrutiny include large companies, exporters, retailers, and dealers in high-volume goods.

Tax authorities, especially those trading with the European Union, often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters.

Therefore, unusual trading patterns, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office and produce questions.

Finally, another common reason for the tax authorities to request further information from taxpayers is the so-called “cross-check of activities”. In this case, the tax office will contact their counterparts to verify that the information provided is consistent on both sides.

Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit – especially if high amounts of recoverable VAT are at stake. In the case of an audit, the main objective should be a successful and fast resolution to limit any detrimental impact on the business.

Our explanation about who pays VAT, the buyer or the seller, has explained things but do ask our experienced team any extra questions you might have. They are here to help.

Frequently Asked Questions

Is VAT paid by the seller or buyer?

A seller collects VAT from sales and reports it to the local tax authority on behalf of the buyer. A buyer may also end up charging VAT if it is selling its own goods or services.

Does the buyer pay VAT?

Yes, a buyer pays VAT to sellers and if a buyer sells goods or services to its own customer base and meets the threshold for VAT registration, it will charge VAT itself and pay this to the government.

Do sellers pay VAT?

Sellers do pay VAT, as it’s a consumption tax involved in every step of the supply chain.

Who pays VAT, the buyer or seller in the UK?

This depends on the transaction, where the buyer or seller sits in the transaction supply chain, and whether the goods are exempt from VAT.

What is the difference between Sales Tax and VAT?

Sales Tax is different to VAT. The consumer only pays Sales Tax when buying the final product, whereas businesses collect VAT at every stage of production – meaning all purchasers pay VAT.

Do you need help with VAT?

Following the publication of various circulars by the Federal Ministry of Finance in Germany in 2021, rules on the taxation of guarantee commitments were made effective 1 January 2023. This blog explains how this affects insurers and other suppliers.

Scope of the rules for guarantee commitments

The Ministry of Finance published its initial circular in May 2021. This was in response to a Federal Fiscal Court judgment. It concerned a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty.

In these circumstances, the circular confirmed that the guarantee is not an ancillary service to vehicle delivery but is deemed to be an insurance benefit. As such, it would attract IPT instead of VAT – unless the guarantee is considered a full maintenance contract.

The circular did not prompt immediate concern within the insurance sector. Markets outside the motor vehicle industry weren’t concerned either. The presumption was that it was limited to the specific context of the motor vehicle industry.

Matters changed the following month. The Ministry of Finance clarified that the tax principles it outlined in fact applied to all industries. As a result, the scope of these rules became potentially limitless in Germany. All guarantees provided as additional products to goods or services sold are now within the scope of the application of IPT.

The clarification could impact industries like those organisations selling electrical items and household appliances.

Effect on insurers and other suppliers

The effect on traditional insurance companies should be relatively limited as they do not usually provide guarantees as part of the sales of goods and services. There could arguably be a significant impact on other suppliers that do provide such guarantees.

First and foremost, there is a potential increase in the cost of providing the guarantees caused by the application of IPT. Unlike input VAT, a supplier cannot deduct IPT from its taxable income – it must either increase prices to compensate or accept a less favourable profit margin.

Any companies that purchase the guarantees cannot reclaim the IPT either, as they can do with VAT. The standard IPT rate of 19% in Germany is high compared to most European countries. This exacerbates these issues.

There are also practical considerations to bear in mind for suppliers obliged to settle IPT with the tax authority. They are presumably required to be registered for IPT purposes like insurers, although the Ministry of Finance has not formally confirmed this.

Perhaps more difficult is the issue of licensing. The Ministry of Finance circulars focus on taxation, leaving it unclear whether other suppliers are now required to obtain a license to write insurance under German regulatory law.

VAT Registration Threshold of EU Countries

The European Union is a collective but its Member States have their own rules and nuances where VAT is involved. Knowing what rules are at play is essential when trading in the EU, and that’s where Sovos’ EU VAT Buster comes in.

Each Member State has its VAT threshold for sales. Though, collectively, things changed when the EU VAT Reform came into force. Bookmark this blog so you always have the key facts available when dealing with EU VAT.

What is the VAT registration threshold for EU countries?

For intra-EU B2C supplies, the VAT registration threshold in the EU changed on 1 July 2021. The EU introduced a new lower threshold of €10,000 for businesses established in the region, while a threshold does not govern those outside the region.

For European businesses, that threshold applies annually and is related to all sales in the EU. There is no revenue threshold for non-European companies, and they must be VAT registered in all Member States they sell within.

For other activities, many EU Member States have domestic supplies for established companies, whereas in most instances non-established companies do not benefit from any threshold.

The table below highlights a selection of EU Member States and the VAT number format for the country.

VAT by Country EU

The below table shows VAT details for several countries. The VAT rates were last updated on 17 February 2023 and include the main reduced rates (countries may also have zero rates – read our blog to better understand how VAT works between European countries).

Common terms: Explained

EU VAT is a vast topic, especially considering each country within the union has its own nuances. As such, many questions are asked of us regarding it. Here are some of the most common phrases you may encounter, as well as some frequently asked questions – and the answers.

VAT Destination Principle

The Destination Principle is a concept which allows for VAT to be retained by the country where the taxed product is being consumed. It’s applied to the Goods and Services Tax in India, and on many EU supplies.

VAT Origin Principle

The VAT Origin Principle is a concept which requires that the applicable VAT rate for a transaction is determined by the Member State where the seller is based.

Union OSS

The Union OSS (One Stop Shop) is a scheme for intra-EU business-to-consumer supplies of goods and services. It was introduced in July 2021.

Non-Union OSS

The Non-Union OSS (One Stop Shop) is a scheme for companies that are not established in the EU. It allows them to register and pay VAT for all business-to-consumer supplies of services in a single EU Member State. It was extended from the previous Mini One Stop Shop (MOSS) in July 2021.

VAT intermediary

All goods imported into the EU are subject to VAT. Businesses selling imported goods under EUR 150 can utilise IOSS (Import One Stop Shop) to simplify their VAT Compliance. To obtain an IOSS VAT registration, most non-EU companies need to appoint an intermediary – such as Sovos.

Deemed Suppliers

Marketplaces may become the deemed supplier of some business-to-consumer transactions when they cross borders, taking on VAT obligations. This means that a marketplace would gain responsibility for collecting and reporting VAT from the consumer.

VAT thresholds

To stay compliant with tax regulations, companies need to know the varying VAT thresholds of the EU Member States. In July 2021, the EU introduced a universal distance selling threshold of €10,000. For other activities, many EU Member States have domestic supplies for established companies, whereas in most instances non-established companies do not benefit from a threshold.

Cross-border supplies

Cross-border supplies involve goods being transported from one country to another. In some cases, goods may cross multiple borders on the journey from the supplier to the final destination of sale. When dealing with cross-border supplies, you may create a requirement to register for VAT.

Customs charges

There are no customs charges when goods are transported from one EU Member State to another. There are customs charges for goods originating outside the EU. Such charges are generated from customs controls at borders and are dependent on a specific set of rules.

Import duties

In the EU, Import duty is tax payable based on the value of imported goods and can include VAT and customs duties.

Frequently Asked Questions

Which EU country has the highest VAT?

Hungary has the highest standard VAT rate of any European country, sitting at 27%. Croatia, Denmark, and Sweden are joint-second at 25%.

Which EU country has the lowest VAT rate?

Luxembourg has the lowest standard VAT in the EU at 16% for 2023, though this will return to 17% in 2024. No country can charge a standard VAT rate below 15%.

What is the minimum standard rate of VAT applicable in the EU?

No EU Member State can charge under 15% as a standard VAT rate. Luxembourg has the lowest standard rate among the Member States at 16% (albeit temporarily).

Is VAT the same in all EU countries?

Although the European Union has somewhat created a uniform tax protocol, each EU Member State has its own VAT rates.

Do I pay VAT on EU purchases?

If you buy or receive goods for business purposes from another country in the EU, you must pay VAT on the transaction at the rate dictated by the type and place of supply.

What is EU VAT threshold?

Businesses need to know the unique VAT threshold of the EU Member States. As of July 2021, the VAT threshold for distance selling in countries in the EU is €10,000. For other activities, many Member States have domestic supplies for established companies – though, typically, a threshold is not applicable for non-established companies.

Do I need to register for VAT in the EU?

VAT registration is applicable for non-resident companies to trade in a country, with specific requirements outlined by the EU and individual tax authorities.

Important update: EU Member States today reached political agreement on the ViDA proposal

VAT in the Digital Age: Your Guide

VAT in the Digital Age (ViDA) will change how trade within the EU is conducted and reported forever.

This proposal will ultimately digitize the European VAT system. Details regarding the changes may be complex. This guide will help you:

What is VAT in the Digital Age?

Simply put, ViDA is a proposal that will enable EU countries to use technology to improve the current VAT system and better prevent fraud. When enacted, this will mean significant changes to how you operate in these countries.

As expected, changes of this size and scope are generating a lot of questions among businesses that conduct operations in the EU. Everything from process costs to technology needs is being evaluated as more information on ViDA becomes available.

To assist your business in navigating the uncertainty surrounding VAT in the Digital Age, Sovos has created this HUB, which will serve as your comprehensive resource for everything ViDA. Bookmark this page and stay up to date.

We will be maintaining and updating this HUB frequently as new information and assets become available.

1. Timeline of ViDA

2. VAT in the Digital Age for digital reporting and e-invoicing

3. ViDA for the single VAT registration

4. The platform economy and VAT in the Digital Age

5. How ViDA affects your business

6. How Sovos can help you with ViDA

7. FAQ

Timeline of VAT in the Digital Age

The EU Commission first proposed the VAT in the Digital Age plan for simple taxation in January of 2022. At that point, they issued a call for feedback, which ended in May of 2022. The Commission adopted the proposal on December 8, 2022, and have issued a follow-up feedback period which runs through April, 2023.

eBook: What is VAT in the Digital Age (ViDA)?

This eBook provides you with a high-level overview of all things ViDA.

Download the full eBook

VAT in the Digital Age for digital reporting and e-invoicing

Digital Reporting Requirements (DRR) will be introduced for all B2B transactions within the EU. This means that all suppliers and customers will need to submit data to their local tax administration no later than two working days after an invoice is issued. Each tax authority will channel the data to a central database.

ViDA for the single VAT registration

The EU has proposed changes that will reduce the VAT compliance burden for companies that conduct business internationally. This measure will allow them to only register once across all EU countries reducing the burden and administrative issues of having to file in each country independently.

The platform economy and VAT in the Digital Age

The increasing popularity of the platform economy business model has created a new set of challenges for the VAT system. The ‘VAT treatment of the platform economy’ only relates to the supply of certain services via a platform.

How VAT in the Digital Age affects your business?

All invoicing and related processes will be impacted. This includes any accounts payable and accounts receivable processes and the associated information systems that support them. You can read the full Q&A with Christiaan van der Valk on how businesses will be impacted here.

How Sovos can help you with ViDA

ViDA, at its core, is about data. The EU is saying that after the fact tax filings that only provide insight into aggregated data for a month or longer are no longer going to be acceptable. By leveraging technology, tax administrations can now receive authenticated transaction data detailing every sale and purchase straight from companies source systems. Tax is now an always on function, not an afterthought. For more, please speak with one of our experts.

Frequently Asked Questions

How can ViDA best be summarized?

ViDA is the EU Commission’s action plan for fair and simple taxation. It emphasizes how tax authorities can use technology to fight tax fraud and benefit businesses while evaluating whether current VAT rules are appropriate for business in the digital age.

Why was ViDA proposed?

To control costs, protect revenue and shrink the VAT gap which has been a major issue of economic concern for all countries within the EU. The 2022 Report on the VAT Gap released by the European Commission estimates that EU Member States lost €93 billion in Value-Added Tax (VAT) revenues in 2020.

What are the areas covered by ViDA?

ViDA is broken down into three main coverage areas:

VAT reporting obligations and e-invoicing
VAT treatment of the platform economy
Single EU VAT registration

What will it cost to implement ViDA?

KPMG has estimated that the overall savings in administrative cost currently borne by taxpayers is EUR 51 billion over a 10-year period between 2023 and 2032. The total cost of implementation for businesses and national administrations is estimated to be EUR 13.5 billion for the same period.

Will ViDA prevent fraud?

The EU Commission estimates that moving to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years.

How does ViDA help businesses conducting cross-border transactions?

The EU Commission announced that this will build on the already existing ‘VAT One Stop Shop’ model for online shopping companies, ViDA will allow businesses selling to consumers in other member states to register only once for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Estimates show that this move could save businesses, especially SMEs, some €8.7bn in registration and administrative costs over ten years.

eBook: What Is VAT in the Digital Age (ViDA) and How Does it Impact My Business?

This eBook provides you with a high-level overview of all things ViDA.

get the ebook

Blog: Mandatory e-reporting and e-invoicing for EU Intra-Community Transactions

read now

Blog: VAT treatment of the platform economy

Read the blog

Sovos’ IPT expert Hector Fernandez takes a deep dive into Spain’s Insurance Compensation Consortium (Consorcio de Compensación de Seguros, or CCS). Hector provides valuable information for insurance professionals interested in staying up to date with the latest developments in CCS regulations and their impact on Insurance Premium Tax.

ebook

What Is VAT in the Digital Age (ViDA)

and How Does it Impact My Business?

What Is VAT in the Digital Age (ViDA)?

In this eBook

What is ViDA?
Data and the technology impact
How and when is ViDA likely to impact my business?
Where do businesses go from here?

The EU Commission has proposed the VAT in the Digital Age plan for fair and simple taxation. It emphasizes how tax authorities can use technology to fight tax fraud and benefit businesses while evaluating whether current VAT rules are appropriate for business in the digital age.

To help you keep pace with all of the rule changes being proposed and evaluated, Sovos has put together this eBook in conjunction with our regulatory experts. Inside you will learn about the key elements of ViDA, why it’s being proposed and its potential impacts on your business.

This VAT in the Digital Age eBook includes a deeper dive into the technology implications of ViDA and why technology is front and center of the discussion. It also includes a Q&A with world renowned regulatory expert, Christiaan van der Valk who breaks down some of the most frequently asked questions to date.

This eBook is intended to provide you with a high-level overview of all things ViDA. As new developments become available, Sovos will be providing new content and analysis, so please bookmark our content library and check back frequently for updates.

In the meantime, should you have any questions regarding ViDA and your businesses ability to adapt and manage any part of this program, don’t hesitate to contact us and speak with one of our regulatory experts or read our regularly updated guide to VAT in the Digital Age.

View the full eBook

Download the eBook

What is the EU VAT Reform?

Aimed at making life easier for businesses, the EU E-Commerce VAT Package simplifies the VAT reporting requirements when trading across European Union Member States. This package is part of wider EU VAT reform.

Our live blog collates vital information on the package, with updates whenever governments or tax authorities provide new information. Bookmark this blog or subscribe to our newsletter to stay updated with the latest developments.

Want to learn more about EU VAT?

EU VAT Reform: A Timeline

EU Commission Proposes Major Reforms for EU Customs including Expansion of the IOSS Scheme

Following Brexit and the introduction of the IOSS, EU customs has seen a significant increase in trade volumes. Now, the EU Commission has put forward proposals to reform current EU customs practices.

The new measures will embrace the digital transformation and lead to a simpler customs process by introducing a data-driven approach to EU Customs that will replace traditional declarations. The aim is to provide customs authorities with the tools and resources to prevent fraudulent behaviour from traders, enabling them to pick out those imports that threaten the EU’s tax take.

The new framework would simplify customs reporting requirements for traders, reducing the time needed to complete import processes by providing a single EU interface and facilitating data use.

EU Customs Data Hub

The EU Commission has proposed a new EU Customs Authority to oversee an EU Customs Data Hub. Over time, the Data Hub would replace the existing customs IT infrastructure in EU Member States, which they believe will save up countries up to €2 billion a year.

The idea of the new Data Hub is that businesses can log all the information on their products and supply chains into a single online environment. This technology will compile the data provided by businesses, providing customs authorities with a 360-degree overview of supply chains and the movement of goods through machine learning, artificial intelligence and human intervention.

Based on the transparency of inputting information into the portal, these businesses will become trusted traders – allowing them to release their goods into circulation into the EU without any active customs intervention. This will allow customs authorities to prioritise their resources and prevent illegal and unsafe goods from entering the EU.

The Data Hub is looking to open by 2028 for e-commerce traders and 2032 for other importers. This will initially be voluntary up until it becomes mandatory in 2038.

Expansion of the IOSS Scheme

The final pillar of the new reforms will be the abolishment of the €150 threshold at which customs duties are charged, effectively expanding the IOSS scheme. Currently, any goods imported at €150 or below are exempt from customs duties, whilst VAT is collected and reported on the IOSS return.

However, this reform will remove that threshold to ensure all goods will be brought into the customs duty regime and prevent fraudulent traders who look to undervalue goods for customs purposes. It is currently believed that around 65% of parcels entering the EU are undervalued.

Under the new reforms, online platforms and e-commerce sellers will become ‘deemed importers’ responsible for ensuring goods sold online to EU customers comply with customs obligations. Such platforms and sellers will charge VAT and duties at the point of sale and settle this via the IOSS return, no matter the value of the order. Therefore, import VAT and duty charges at the border for imported goods will no longer hit the consumer.

One year on for the One Stop Shop – the changes and challenges of the new e-commerce VAT scheme

In this episode of the Sovos Expert Series, Cécile Dessy speaks with Russell Hughes, Consulting Services Manager at Sovos, to explain how these new schemes have evolved during their first year.

The EU E-Commerce VAT Package – What Have We Learned Nine Months On?

It’s been just over nine months since the introduction of one of the most significant changes in EU VAT rules for e-commerce retailers, the E-Commerce VAT Package.

Under the new rules, the country-specific distance selling thresholds for goods were removed and replaced with an EU-wide threshold of €10,000 for EU-established businesses. Non-EU-established businesses now have no threshold.

How the EU E-commerce VAT Package has affected businesses

Initially, the thought of charging VAT in all countries businesses sell to was overwhelming. Though, businesses now see many benefits from the introduction of OSS.

The biggest benefit for businesses is VAT compliance requirements simplification. OSS implemented one quarterly VAT return instead of meeting many different EU Member State filing and payment deadlines.

Businesses that outsource their VAT compliance have reduced their costs significantly by deregistering from the VAT regime in many previously VAT-registered Member States. Businesses also receive a cash flow benefit under the OSS regime as VAT is due quarterly instead of monthly or bi-monthly.

As part of this EU VAT reform, we saw the removal of low-value consignment relief. This change meant import VAT was due on all goods entering the EU. It brought many non-EU suppliers into the EU’s VAT regime, with the European Commission (EC) announcing over 8,000 currently registered traders.

EU Member States had some hiccups, including not recognising IOSS numbers upon import, leading to some double seller taxation. But for most businesses, IOSS enables them to streamline the sale of goods to EU customers for orders below €150. The EC recently hailed the initial success of this scheme by releasing preliminary figures showing €1.9 billion in VAT revenues collected to date.

Want to know more about the EU VAT reform and One Stop Shop and how it can impact your business? Download our detailed guide.

IOSS Four Months On

As with any new initiative, IOSS has not been without its issues. Here we look at some of those issues early into the new VAT system.

EU VAT reform and double taxation

Some clients tell us there is some confusion with their freight forwarders, who continue to operate the “landed cost” model even though the seller intended to sell under IOSS.

Under this model, the seller charges the customer an amount including VAT. The freight forwarder then imports the goods in the name of the customer. Then, the freight forwarder settles the customer’s import VAT liability and seeks reimbursement from the seller.

In this case, the local tax authority receives the VAT due as import VAT. However, freight forwarders still use this model in cases where the seller has provided its IOSS registration number.

Although the customer pays import VAT, the seller also accounts for supply VAT on its IOSS return. Double taxation must be funded by the supplier if the seller reimburses the freight forwarder without correcting the error.

Fraudulent IOSS VAT number usage

The EC removed low-value consignment relief on 30 June 2021. It levelled the playing field and reduced the VAT gap by dealing with fraud. However, there appears to be a gaping hole in the system, meaning fraud is just as possible, and the playing field is anything but level.

Where a shipping document includes an IOSS number, the underlying assumption is that the goods are under €150, and the seller will pay the VAT due. The IOSS number is checked for validity but not identification of IOSS number ownership.

IOSS numbers are widely available online, especially for online marketplaces. We are hearing that some unscrupulous sellers are using valid IOSS numbers that belong to other businesses.

This activity allows them to sell goods knowing they will never have to account for VAT in the EU, thereby undercutting local suppliers. The owner of the IOSS number does not account for this VAT, and the tax authority will find this discrepancy during an audit.

Issues with particular types of transaction

There is confusion around certain categories of goods and their IOSS treatment. Businesses can sell magazines and other goods under a subscription service, and the subscription period can often be more than one year.

In an annual subscription scenario, there will typically be one payment at the beginning of the subscription and then a succession of deliveries of goods – 12 for a monthly subscription.

So, the question is, how are subscriptions treated under IOSS? Where IOSS is applicable, if the seller reports the full amount at the outset, there will be a mismatch between the VAT return and the imports. If the seller reports an amount equal to one month’s subscription month, then VAT is accounted for late since VAT is generally due at the earlier of the issue of the invoice or the receipt of the payment.

How is the IOSS eligibility assessed? Is it the value of each shipment or the value of the subscription considered when determining whether the intrinsic value is less than €150?

There is speculation that each consignment’s value determines if a seller can use IOSS. We put this question to one EU tax authority. They replied that we could find the issue of subscription treatment within the rules on when the seller must account for VAT. The rules clearly state that tax authorities consider goods supplied at the time when the seller accepts payment.

In this case, the tax authority recognises all 12 magazines as supplied when the seller accepts payment. If that payment is above €150, then IOSS is not available. Not all Member States share this view. It raises the question of which tax authority decides – where the business is registered for IOSS or where the VAT is due?

Need more information on IOSS and how it could impact your tax compliance? Get in touch with our team.

The EU E-Commerce VAT Package: Lessons Learned Two Months On

Delays and teething problems

Unfortunately, there were initial delays and teething problems when the EU introduced the E-Commerce VAT Package. We expected this with the adoption of such significant EU VAT reform, but as with any new scheme, the tax authority can resolve this over time.

Goods import issues

Some Member States disallow the import of specific categories of goods due to local restrictions, e.g. foodstuffs, plants, etc.

It’s sometimes unclear if freight forwarders have used IOSS or not. This confusion could lead to repeated errors of VAT underpayment or overpayment.

Some non-EU vendors are trying to avoid an IOSS registration by stating that the customer is the importer of record. While this occurred before IOSS, it did not occur as much as it does now – and was not always spotted or queried.

However, since the introduction of the IOSS, some tax authorities, including Germany, have questioned this approach. In some cases, the carrier who imports the goods acts for the non-EU vendor and the buyer is unaware of their identity.

OSS Explained – Explanatory Notes for July 2021 VAT E-Commerce Rules

On 30 September 2020, the EC published its Explanatory Notes on VAT E-Commerce Rules. It provides practical and informal guidance on upcoming e-commerce regulations. The EU initially adopted this EU VAT reform under Directive 2017/2455 and Directive 2019/1995.

The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe. It specifically addresses: B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services.

The explanatory notes provide further guidance on applying OSS and IOSS schemes. It includes scenarios where Electronic Interfaces (such as marketplaces) are liable for VAT collection and remittance relating to underlying suppliers transacting on their platforms.

The OSS scheme:

For EU-EU goods deliveries, suppliers are no longer required to register and file VAT returns in every EU Member State where they’ve exceeded distance selling thresholds. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods.

Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return for all their EU distance sales.

A similar scheme, the Mini One Stop Shop (MOSS), already exists for electronically supplied services by EU and non-EU suppliers. The EU will broaden its scope to include all B2C services where the VAT is due in a country where the supplier is not established.

B2C suppliers participating in OSS must use it for all supplies under the scheme. However, it shouldn’t be seen as a drawback because the EU designed the OSS scheme to reduce admin burdens.

For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements for service invoices only, but not for goods).

The IOSS scheme:

Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new IOSS simplification regime. It is designed to facilitate smooth and simple VAT collection on B2C imports from outside the EU.

With the concurrent repeal of the €22 low-value consignment relief, IOSS is an attractive option for suppliers looking to reduce administrative and compliance burdens.

Under this new EU VAT reform, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for IOSS in a single Member State. It allows them to collect VAT in the respective EU country of destination and remit monthly IOSS VAT returns.

The new e-commerce rules explanatory notes emphasise the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration.

Nevertheless, businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.

In our latest VAT Reporting and SAF-T quarterly update webinar, Inês Carvalho, Regulatory Counsel, analyses the latest legislative changes to periodic reporting (VAT and SAF-T) and how they could affect your business.

It can be difficult to know where you stand regarding EU VAT changes and European tax laws. There have been sweeping changes implemented in recent years.

What is EU VAT reform?

To keep up with the digital age, the EU changed how its VAT system works in July 2021. The EU e-Commerce VAT Package was part of this. So was the One Stop Shop (OSS), which intends to make cross-border trade less of a headache.

With OSS, companies can declare and remit the VAT due on certain sales in a single language and within just one Member State tax administration.

What are the latest EU tax laws and changes?

Prior to the EU VAT reform, e-commerce sellers of goods needed to have a VAT registration for each of the EU Member States that they traded in – providing they had a turnover above a particular threshold. The threshold was dependent on the country.

With the changes that arrived on 1 July 2021, these thresholds were replaced by a single, universal threshold of €10,000 for EU businesses. If turnover exceeds that figure, VAT must be paid in the Member State where the goods are delivered. Non-EU businesses have no threshold.

What is the current EU VAT rate?

While the EU’s lowest agreed standard rate is 15% as per the VAT Directive. Luxembourg has the lowest standard rate at 17%, whereas Hungary has the highest at 27%. Other countries fall within that range.

What has changed since July 2021?

On 8 December 2022, the European Commission proposed changes in relation to the VAT in the Digital Age initiative.

While nothing was been implemented at the time of publishing, the proposal offers up significant changes and is one of the more prominent developments in the history of VAT in Europe.

Again, the regulatory change is yet to come into effect. It requires formal adoption by the Council of the European Union and the European Parliament, as well as a unanimous positive vote by the Member States but if approved these will include significant changes.

Do I now have to pay VAT on EU goods?

If your company is based in the EU then VAT is likely to be chargeable on both purchases and sales of goods within the region. Exceptions do exist, however.

Where VAT is charged depends on the type of supply and is determined by the EU’s place of supply rules which determine where VAT is due, i.e., country of supplier or country of delivery.

What is OSS and does it come with new tax regulations?

The One Stop Shop abolished distance selling thresholds that were in place and created a centralised electronic platform for VAT. The change means that where intra-EU supplies exceed the €10,000 EU threshold (no threshold for non-EU companies), VAT is due in the Member State of the delivery – regardless of the level of sales in that country.

European businesses can take care of all their VAT obligations for sales across the entirety of the EU through the OSS. The scheme allows for any VAT due to be accounted for in a single VAT return, making life easier for businesses that trade across the EU. Companies trading in the EU are eligible to utilise OSS, and there is also a non-union OSS scheme for businesses outside the EU for digital supplies.

Get in touch today to understand how ever-changing VAT e-commerce rules in the EU affect your business.

Will VAT change when we leave the EU?

The most recent country to leave the EU was the United Kingdom. The UK hasn’t changed its VAT system however businesses selling into Europe have needed to change their business practices.

Is the UK still in the EU for VAT purposes?

No, the UK maintains its own VAT rate and tax system. Different rules apply for businesses in Northern Ireland.

Can EU countries change VAT?

Yes, an EU country can change its VAT rate within the guidelines set by the EU VAT Reform.

For EU-based companies, VAT is chargeable on most purchases and sales of goods within the European Union. As a manufacturing company, this can result in many different VAT rates being charged.

Choosing the right country for entry into the EU can be a tough decision, especially considering countries have their own rules. Take into account that you may not know the location of goods and the situation can soon become complex.

Manufacturers can suffer disruption to their supply chains – which can often already be sophisticated as is – if this is not dealt with effectively. But where to start?

Our VAT experts are here to help. Join them in our upcoming webinar to learn about:

All European countries charge VAT on goods and services. VAT is a consumption tax added during each production stage of goods or services.

Although VAT is near-universal according to the EU VAT Directive, VAT rates within the EU do differ.

When and where is the VAT between European countries charged?

Authorities in the EU charge VAT on all taxable supplies of goods or services at each stage of the supply chain. Our blog on who pays VAT, the buyer or seller, explains why in more depth. This is a significant distinction from Sales Tax, which only applies to the final supply. Some goods and services, such as healthcare and financial services, are exempt from VAT.

Companies must also distinguish if they are supplying goods or services to another business (B2B) or a private individual (B2C). This difference dictates how and where they need to charge VAT.

Supply of services

The general rule for B2B is that the product or service is taxed where the customer is established, while B2C services are taxed in the supplier’s country.

There are some special rules, however, such as those related to immovable property or events.

Supply of goods to businesses (B2B)

The situation starts to get complicated when transporting goods between countries. The taxable person must take the nature of the goods supplied and how the supply takes place into account.

When dispatching or transporting goods between businesses in different EU Member States, Intra-Community Supply (ICS) and Intra-Community Acquisition (ICA) of goods occur. An Intra-Community Supply of goods is a transaction where the goods are dispatched or transported by, or on behalf of, the supplier or customer between the EU Member States and is exempt, providing it meets certain conditions.

At the same time, a customer making an Intra-Community Acquisition is a taxable transaction. Where the ICA has been carried out define the location of tax, namely the location of the goods after the transport has finished.

Different rules apply to the export of goods to countries outside of the EU where the VAT is charged in the country of import. Instead, the location of the goods once they’ve arrived sets where the supply is. It is then treated as zero-rated in the Member State of export if it meets specific evidence requirements.

We know how complicated this sounds and our experienced team can answer your questions about this side of VAT. Contact our VAT experts here.

How VAT is charged

Generally, the business charges output VAT on the supply when the supplier carries out a taxable supply. The customer then deducts input VAT on the purchase, if valid to do so.

In some instances, the reverse charge mechanism applies. The reverse charge requires the customer to account for the VAT and is also known as a ‘tax shift’.

Where it applies, the customer acts as both the supplier and the customer for VAT purposes. The company charges itself the applicable VAT and then, where that service relates to taxable supplies, it recovers the VAT as input tax in the VAT return. The VAT charged is instantly reclaimed.

Typically, the customer must provide the supplier with a valid EU VAT number to use the reverse charge.

Supply of goods to consumers (B2C)

Whilst the general rule on supplies of goods above applies, the rules have changed over the years to apply VAT where the goods are consumed.

When a business sends goods from one Member State to a private individual residing in another Member State, the VAT rate of the country of the customer should apply – unless the supplier can benefit from the EUR 10,000 threshold per annum.

In such a case, the supplier can charge the domestic VAT rate and report the sales below this threshold in the domestic VAT return. However, this exemption does not apply to suppliers established outside the EU or keeping stock in several EU countries.

To minimise the administrative burden of businesses registering in all EU Member States where the goods are delivered, the EU launched the OSS (One Stop Shop).

OSS schemes have simplified the supply of goods by taxable persons to private consumers:

Businesses established in the EU are entitled to use the Union and Import schemes, whereas non-EU companies can take advantage of the non-Union, Union and import schemes.

IOSS (Import One Stop Shop) simplifies the registration obligations for sellers established outside of the EU that sell goods to private individuals in the EU. Similar rules apply for the OSS, allowing the seller to register in one Member State where they account for VAT in their VAT returns.

Other advantages of using this scheme include exemption from import VAT and avoiding customs duties. This scheme, however, is restricted to consignments up to EUR 150.

How does VAT work between EU countries?

Standard rates

The EU’s lowest agreed standard VAT rate in the VAT Directive is 15%, but it is not applicable in any of the EU Member States. The lowest standard VAT rate in the EU is in Luxembourg at 17%, followed by Malta at 18% and Cyprus, Germany and Romania at 19%. Hungary is one of the EU countries with the highest VAT rate at 27%, followed by Croatia, Denmark and Sweden with 25%.

Reduced rates

Annexe III of the VAT Directive mentions the threshold for applying reduced rates within the EU Member States. The rate cannot be below 5%.

Special rates

Do I now charge VAT to EU customers?

When concluding if you should charge VAT to your customers in the EU, consider the following:

EU VAT is always subject to change, so don’t be caught with outdated information. Follow our blog for the latest news on EU VAT rates and analysis of major developments the moment they happen or speak to an expert.

Your guide to the EU VAT e-commerce package

The EU VAT e-commerce package changed VAT rules for cross-border trade.

While the package makes life simpler and fairer for all, the details can be complex. This guide helps you to:

Don’t have time for reading? Ask our experts instead, no question is too difficult for them on the EU VAT e-commerce package.

How to trade within and outside the EU

Knowing how to trade within the EU or as a business outside the market is more challenging than ever. Numerous rules to follow. Penalties to avoid. Even finding accurate, up-to-date information is difficult.

Our guide explains how to handle EU E-Commerce VAT compliance, from the moment you advertise a product to when and how you pay your VAT bill. Our guide is ideal reading if you are:

A business affected by Brexit
An ambitious e-commerce company that’s expanding internationally
A tax professional facing EU VAT headaches
An accounting team struggling with new compliance requirements
A curious retailer intrigued by online marketplaces
A finance person tasked with understanding the rules

Learn more about VAT compliance for e-commerce and how the Sovos Compliance Services Portal can help.

This guide to the EU VAT e‑commerce package contains:

Information. Lots of helpful information.

We go right back to basics, explaining what EU VAT is, what you need to know as a business, and the goal of the EU VAT e-commerce package.

We cover key facts too, so you can get a solid grasp of what the package is. Don’t forget a timetable with all the important dates you need to know. Then we cover the schemes enabling simpler trade for all.

1. An introduction to EU VAT: what you need to know

2. Key facts about the EU VAT e-commerce package

3. Timetable of the EU VAT e-commerce package

4. How to trade within the EU

5. How to trade outside the EU

6. What Non-EU countries need to know about IOSS & OSS

8. FAQ

What is the EU VAT e-commerce package?

The EU VAT e-commerce package arrived on 1 July 2021.

It’s ultimately a set of rules defining how businesses trade within the European Union. It applies to B2C and e-commerce companies and focuses on which party pays VAT, and how.

The idea behind the EU VAT e-commerce package is to level the playing field by simplifying distance selling. The package also means B2C businesses selling into the EU can use the appropriate VAT registrations across the EU according to their requirements instead of registering in each Member State.

The EU VAT e-commerce package consists of three schemes – the Import One Stop Shop (IOSS), One Stop Shop (OSS) and Non-Union One Stop Shop (Non-Union OSS, which used to be the Mini One Stop Shop (MOSS)). Depending on where your business is based and where it operates, you could need to use just one or all three schemes.

All of these are explained later in our guide.

The most important thing to remember is that although these schemes simplify trade, they require businesses to prepare and thoroughly understand the additional requirements involved.

This means:

Life becomes harder for anyone responsible for VAT within a non-EU business
Companies must change how they process and report transaction data
Compliance becomes more complex
The chance of human error increases, as does the risk of penalties
Help is available to make your life easier

The EU VAT e-commerce package affects many parties, from VAT experts and tax managers to e-commerce sellers, entrepreneurs, marketplace store owners, accountants and audit firms.

An introduction to EU VAT: What you need to know

Like other regions across the globe, EU Member States charge VAT on purchases.

Member States is an official term for countries within the European Union, and Value Added Tax (VAT) is a tax collected by businesses on behalf of their government. Generally, the burden for VAT lies with the consumer, who pays VAT that applicable companies then collect through their supply chain.

There is no single standard rate of VAT in the EU. The VAT rate varies from country to country. Some tax authorities charge 19%, while others charge 25% or higher rates. The minimum EU standard rate can be no less than 15%.

Businesses must charge the correct applicable VAT rate, as mistakes can cause customer issues or, worse, result in financial penalties.

Explaining how to follow all the rules correctly is covered in our guide that introduces EU VAT as a general concept.

Key facts about the EU VAT e-commerce package

Everyone loves a fact, and we have plenty to share on the EU VAT e-commerce package.

Did you know…

Import One Stop Shop (IOSS) is for low value goods delivered from outside the EU
Union One Stop Shop (Union OSS) is for intra-EU B2C deliveries of goods and for intra-EU services provided B2C by EU established suppliers
Non-Union One Stop Shop (non-Union OSS) is for non-EU to EU services and replaces and extends the previous Mini One Stop Shop (MOSS)
Businesses using any OSS simplification must apply it to all qualifying transactions
Additional record keeping is required for OSS
Declarations for Union OSS and Non-Union OSS are quarterly, declaration for IOSS is monthly
Non-EU businesses might need to appoint an intermediary
Non-EU retailers may need to report under all three schemes

All this talk about different rates, dates and thresholds can be confusing – simplify your life by reading our EU VAT buster on rates, number formats and thresholds.

Timetable of the EU VAT e-commerce package

Businesses need to know where they’ve been to know where they’re heading. This is why we’ve summarised the package’s major milestones since the moment it was first announced.

2016 – European Commission publishes ‘Action Plan on VAT’, introducing a One Stop Shop mechanism for cross-border e-commerce
15 July 2020 – European Commission adopts new Tax Action Plan, a four-year plan to make tax fair and simple
30 September 2020 – European Commission publishes ‘Explanatory Notes on VAT E-Commerce Rules’
1 July 2021 – The EU VAT E-Commerce Package is introduced
8 December 2022 – European Commission proposes changes in relation to VAT in the Digital Age initiative

Keeping track of dates is often time-consuming, especially with so much information spread across many online sources.

Visit our regularly updated live blog about the EU VAT reform timeline. Read this blog if you want to answer that frustrating question: what are the latest EU VAT rates, laws and changes?

How to trade within the EU

Let’s dig deeper.

OSS stands for One Stop Shop, the umbrella term for all three schemes. Union OSS is a scheme to help EU established suppliers with providing B2C intra-EU services and for B2C deliveries of goods within the EU.

EU established businesses need to register for OSS in the Member State they are established in.

Don’t fear OSS. Our free guide covers everything you need to expand your knowledge.

Want to skip straight to the benefits? Talk to an expert about leveraging the OSS scheme for your business

How to trade outside the EU

IOSS is short for Import One Stop Shop. This scheme simplifies the registration obligations for taxpayers who carry out distance sales of goods imported from third countries to private individuals in the EU. IOSS applies to low value goods, defined as up to €150.

What is meant by distance selling?

This term covers the sale of goods, services or digital content where there is no face to face contact with the consumer. It includes online, postal, and phone sales.

What is meant by a third country?

This basically refers to any country that is not a member of the EU.

Non-Union OSS applies to all services sold B2C by suppliers not established in the EU.

Want to learn more about IOSS? We’ve got an easy to understand ebook about IOSS to help you get to grips with the scheme.

What non-EU countries need to know about IOSS and OSS

Does it pay to be in the EU club? Judging by the fact EU VAT becomes trickier when your business isn’t located within the region, perhaps the answer’s yes. These are the key facts you need to know. If you want more information about what non-EU countries need to know, read more here.

What’s the difference between IOSS and OSS?

IOSS accounts for B2C of goods imported from third countries, whereby the eligible supplies are restricted to a single consignment value of up to €150.

OSS accounts for B2C intra community distance sales of goods irrespective of the consignment value.

The main difference is that with IOSS the goods are located in a third country (outside the EU customs territory) at the time of the sale, whereas with OSS the goods are located within the EU’s territory.

Understanding EU VAT compliance

There are many elements to understanding European VAT compliance. This ebook got you covered.

Read now

Guide to the Import One Stop Shop

Everything you need to know about the Import One Stop Shop is in this ebook.

Get the ebook

Webinars

Prefer video? We have plenty of webinars to help you better understand OSS and IOSS:

watch now

FAQ

Do you pay VAT on e-commerce?

This of course depends on what goods or services you are supplying, but unless an exemption or zero rate applies VAT will be due on e-commerce sales into or within the EU.

How does VAT work for e-commerce?

This depends on whether you are selling goods or services as the rules vary, but generally VAT looks to tax the point of consumption, whether that be an individual streaming music in their country of residence or an individual receiving goods purchased online.

Should I be charged VAT from an EU supplier?

Most EU suppliers will need to charge VAT. There are some exceptions, such as the €10,000 threshold for small businesses and depending on the type of product a zero rate or exemption may apply.

Do you charge VAT on digital services to the EU?

Yes, for business to consumer sales, VAT is due in the country of the customers establishment / residence. The OSS simplifications are particularly useful for meeting reporting obligations.

Who is affected by the EU VAT e-commerce package?

The EU VAT e-commerce package applies to VAT for intra-EU B2C supplies of goods and imports of low value goods as well as services. It affects cross-border B2C trade and e-commerce, including businesses who sell on online marketplaces. The schemes that make up the EU VAT e-commerce package (IOSS, OSS and non-Union OSS) are currently optional.

It’s time to get EU VAT compliance right

The EU VAT E-Commerce package has been in place since 1 July 2021. This applies to intra-EU B2C supplies of goods and imports of low value goods. Three schemes make up the package. These are based on the value of goods and the location of the sale of goods.

All OSS schemes are currently optional. The schemes mean taxpayers can register in a single EU Member State and account for the VAT due in other Member States.

How to ship to Europe

Exporting products to the EU is challenging. Couriers often have a bewildering number of services. Prices differ from service to service.

There’s no easy way to find fast, cost-effective shipping services, but here are tips to help:

Does my company need a VAT number?

Businesses with a certain turnover must register for VAT. This varies from country to country. For example, the UK’s VAT threshold is £85,000 for established businesses. If you are interested in a business solution, please get in touch with our sales team.

How do I get a VAT number?

Registering for VAT takes time. Each Member State has its own process for obtaining a VAT number. VAT compliance differs from Member State to Member State.

For non-EU companies, appointing a Fiscal Representative might be necessary. A Fiscal Representative acts on behalf of companies in a local VAT jurisdiction, managing VAT reporting and other requirements. For IOSS, most non-EU businesses will need an IOSS intermediary.

We know registering for VAT is difficult and involves understanding place of supply rules, fiscal representation and many other elements.

The EU VAT E-Commerce package enables taxpayers to register in one Member State to account for VAT in all Member States.

Benefits of applying for a VAT number as a non-EU business

In most cases, a VAT number will be mandatory because of your business’ activity; in some cases, it will be voluntary. There are many benefits to applying for a VAT number.

These include preventing financial penalties and receiving EU VAT refunds. EU VAT refunds depend on certain circumstances, such as on VAT exempt items.

How to register for OSS

The OSS scheme is currently optional. Before registering businesses should consider the benefits and impact on their supply chain.

When a supplier obtains either an the Member State that grants the VAT number becomes known as the Member State of Identification.

Registering for OSS in the UK

As the UK is no longer part of the EU, registering for OSS as a UK business means using the Non-Union OSS, Union OSS or IOSS schemes. There is no need to have a normal VAT registration in the EU to apply for IOSS or a non-Union OSS VAT registration, however, a local EU registration is required before obtaining the OSS registration.

The first step is to understand if an needs appointing. The intermediary, usually an agent or broker, submits the IOSS returns on behalf of the company.

The UK business will need to choose the Member State it wants to register with for the non-Union OSS scheme.

If the UK business has warehouses in the EU, then the company will still need local in each Member State with a warehouse, but they can choose one Member State for OSS registration.

The Northern Ireland Protocol adds even more complexity to cross-border trade. Stop browsing the internet for unhelpful answers; contact our experts for advice instead.

Our team of experts can help you understand OSS and IOSS further. Don’t hesitate to get in touch today, especially about the Northern Ireland Protocol’s effect on trade.

FAQ for non-EU countries

What is VAT number called in USA?

The USA doesn’t have VAT. The equivalent is Sales Tax, with its own permit and tax ID.

DO US companies have a VAT number?

If a US company wants to sell goods into Europe it can register for a VAT number with the relevant Member State tax authority. The business’ supply chain will determine if / where a VAT registration is required.

Do US companies have to pay UK VAT?

This depends on the product or service and whether the US company has activity in the UK that requires it to become VAT registered such as selling low value goods or importing in its own name into the UK.

How much is international shipping to Europe?

The cost of international shipping to Europe varies, depending on where you send goods from and how quick delivery is.

How much does it cost to ship from USA to Europe?

Costs for shipping from the USA to Europe vary, depending on if they are express or standard shipping times. Different couriers charge different prices too.

What is the cheapest way to ship a package from USA to Europe?

How long is shipping from EU to US?

Shipping from the EU to the US can take anywhere from four days to four weeks, depending on customs and import requirements.

You want to sell and trade within the EU with ease?

Tax has always been challenging and ever-changing VAT regulations across Europe add to the complexity, requiring technology adoption to support compliance- related activities.

It’s time for businesses to evaluate how efficiently they’re handling their VAT compliance obligations.

We created this checklist to help you assess whether you already have an effective, scalable solutions that’s optimized for the diverse range of compliance requirements and future-proofed to adapt to coming changes.

If you can tick all the boxes, you’re on the right path to mitigate risk and meet the demands of VAT digitization.

Checklist

Can’t check all the boxes? Don’t worry, Sovos helps ease the increased demands of tax digitization so you can prioritise your core business . We take a future-facing approach to always-on tax compliance with intelligent tools that provide data insights for a competitive advantage.

Take Action

Global solutions and services provider appoints executives to lead new era of growth

LONDON – January 11, 2022 – Global tax compliance provider Sovos today announced that Wendy Walker, solution principal, and Charles Maniace, vice president of regulatory analysis and design, were recognised in Accounting Today’s Top 100 Most Influential People in Accounting. Accounting Today’s list acknowledges the industry’s authoritative thought leaders, change makers, regulatory and other leaders who are shaping the profession. Additionally, Christiaan van der Valk, vice president of strategy and regulatory, was named a winner of Business Intelligence Group’s 2023 BIG Innovation Award. The BIG Innovation Awards recognise organisations and people who bring new ideas to the table and change the way we experience the world.

As the federal government moved toward reducing the threshold to trigger 1099-K reporting, Walker has been monumental in ensuring that third-party payment processing and gig economy platform organisations prepare for the upcoming changes. In addition to her responsibilities at Sovos, Walker also serves as chair of the Information Reporting Subgroup of the Internal Revenue Service Advisory Council (IRSAC), advising the IRS on a variety of withholding and information reporting issues impacting the industry.

“When the American Rescue Plan Act was signed into law in March 2021, we knew that compliance was going to be a heavy undertaking for organisations of all sizes,” said Walker. “I’ve been vocal about what these changes mean for companies, and I thank Accounting Today for recognising my efforts to empower business to stay ahead of these changes.”

Maniace leads a team of 40+ attorneys and tax professionals to ensure that Sovos’ suite of sales tax compliance solutions remains continually up to date as sales tax rules and requirements change at an increasingly frenetic pace. This is the fourth year that Maniace has been recognised by Accounting Today.

“Since SCOTUS made its historic ruling in 2018 enabling states to require tax compliance from remote sellers, legislators and regulators should be striving to simplify and streamline their requirements so that sales tax never represents an undue burden. In some places, we have seen the opposite, with complex new laws and regulations creating traps for the unprepared.” said Maniace. “My goal is to advocate for sales tax simplicity and modernisation while ensuring that our customers are always ready for whatever may come.”

As vice president for strategy and regulatory at Sovos, Christiaan Van Der Valk leads research into trends in the market and tax legislation. His insight and expertise are instrumental in determining business strategy and when to buy, build or partner to create solutions that meet emerging trends. Van der Valk holds long-standing leadership roles at the International Chamber of Commerce (ICC) and the European E-invoicing Service Providers Association (EESPA).

“The large-scale aggressive use of real-time integration technologies by governments seeking to fill tax gaps is changing the way businesses think about tax compliance and information systems” said van der Valk. “To minimise friction from this new paradigm, my long involvement with key international organisations has helped me spearhead initiatives to broker new ways in which complex government and business ecosystems can collaborate more effectively. Among other deliverables, this has led to the ICC Principles for Continuous Transaction Controls (CTCs).”

In addition to our experts’ industry recognition, Sovos has expanded its global leadership team to drive continued growth and enhanced solutions and services.

“Solving the world’s most challenging compliance issues takes strong leadership and a sustained commitment to excellence at both the technical and partnership levels,” said Andy Hovancik, CEO, Sovos. “I am confident this is the right team to bring Sovos to the next level of growth and solution delivery, anywhere our customers do business.”

To learn why Sovos is trusted by half of Fortune 500 companies, visit www.sovos.com.

About Sovos
Sovos was built to solve the complexities of the digital transformation of tax, with complete, connected offerings for tax determination, continuous transaction controls, tax reporting and more. Sovos customers include half the Fortune 500, as well as businesses of every size operating in more than 70 countries. The company’s SaaS products and proprietary Sovos S1 Platform integrate with a wide variety of business applications and government compliance processes. Sovos has employees throughout the Americas and Europe, and is owned by Hg and TA Associates. For more information visit www.sovos.com and follow us on LinkedIn and Twitter.

Nearly every major economy has a form of VAT. That’s 165 countries, each with its own compliance and reporting rules. The main exception is the United States. VAT is by far the most significant indirect tax for nearly all the world’s countries. Globally VAT contributes more than 30% of all government revenue.

Levying VAT is a term used to describe when a company collects VAT on behalf of a tax authority. This happens at each stage in a supply chain when a taxable event occurs. A country’s tax rules define what a taxable event is.

How VAT works

VAT is due on nearly all goods and services. This is up to, and including, the final sale to a consumer – that’s you and me.

Applied correctly, VAT should be cost neutral for most businesses. Companies collect VAT from their suppliers, then pay this money to the government. In the UK, this is normally every three months.

Companies can reclaim the VAT on some of their purchases. When applicable, this means your business pays less VAT when its VAT return is due.

Another thing a company can do is postpone its VAT accounting. There are different reasons why this is allowed, for example, in relation to import VAT.

VAT returns

A VAT return is a document listing all the VAT you have collected and what you are reclaiming VAT on along with various other information on sales and purchases in the period.

Submitting VAT returns is a legal requirement in most countries. The format and frequency vary around the EU, so it’s essential to keep

In addition to VAT returns, businesses might have to submit other declarations. This depends on the company’s trading activity and the requirements in the Member State of registration. This could include or . These can be quite complicated, as we explain here.

Understanding your VAT obligations also requires mapping a supply chain for the country of registration.

The following information applies to larger businesses or businesses selling into the EU.

Sales Tax vs VAT

VAT is a broad-based consumption tax and a form of indirect taxation. It is imposed on goods and services at each stage of the supply chain, with each party paying the government the tax and passing the final cost onto the ultimate consumer.

The idea is that each party effectively only pays VAT on the value added to the product or service. This is because the party can recover the VAT on associated costs (of course, there are exceptions). One of the disadvantages is that it requires accurate accounting.

On the other hand, sales taxes are generally taxes placed on the sale or lease of goods and services.

Usually, the seller collects the tax from the purchaser at the point of sale. Sales tax is calculated by multiplying the purchase price by the applicable tax rate. The seller at a later stage transfers the tax to the responsible government agency.

How does VAT work between EU countries?

The EU VAT Directive 2006/112/EC establishes the rules for where VAT is due in the EU. Member States must implement these rules in a uniform way to avoid the possibility of double or no taxation. This blog goes into details how VAT between European countries works.

How EU countries apply VAT

There’s a supply of goods – Where goods are not transported, the place of taxation is where the goods are made available to the customer. Where the goods are transported, the place of supply is where the transport starts (unless an exemption applies).

There’s a supply of services – For B2B transactions the place of taxation is generally where the customer has established their business. This applies to “intangible” services where the place of consumption cannot be determined easily.

A thing called intra-community acquisition of goods occurs – The place of taxation is the place where the transport ends (i.e., the EU country where the goods are finally located after transport from another EU country).

At the point goods are imported – The place of taxation is where goods imported from non-EU countries are generally taxed (i.e., in the EU country where they are cleared for free circulation).

Why EU countries use VAT

VAT can be adjusted up and down depending on how a country’s economy is performing quickly. This means a country can raise taxes quickly or support a certain sector by reducing VAT.

Once collected, the money can be spent on public services, infrastructure, healthcare and other important growth initiatives.

But wait, what about those pesky questions like “should I charge VAT to EU customers?” or “do I pay VAT if buying from Europe?”. We hear these all the time from customers who struggle with VAT rates across different EU countries.

And then you have super reduced rates and zero rates? Let’s not forget intermediary rates.

If your business is expected to charge VAT to EU customers, or you yourself are faced with paying VAT on a purchase when buying from Europe, it’s important you feel confident applying the right VAT rate each and every time.

Have a question about the many different types of VAT rates in the EU? Our tax experts are yet to receive a question that stumps them, and they will happily help unload you from this burden.

Exempt goods and services

Sometimes companies don’t have to pay VAT. This happens when the goods or products they sell fall into an exempt category.

Some examples of exceptions include education and training, charity fundraising and insurance. Insurers instead pay a tax called (IPT).

A VAT exempt business cannot register for VAT, nor can it reclaim VAT. This is slightly different to zero-rated goods or services. In that case, VAT is charged, but at 0%. Some companies can be partly exempt too.

VAT exemptions differ country to country so it’s important to check a tax authority’s website to see whether your business needs to pay VAT. ? We love setting our clients free from their tax compliance burdens so they can focus on growing their business.

Frequently asked VAT questions:

Is VAT paid by seller or buyer?

The seller collects VAT from their buyer and pays to the relevant tax authority.

Does the buyer pay VAT?

Yes. A person or company buying a service or product pays the tax when the item is chargeable.

Do sellers pay VAT?

Sellers pay VAT on any items they purchase for their own business. The VAT they collect from their own customers is paid to HRMC. In some cases, sellers also need to self-account for the VAT due from their customers.

Who pays VAT, the buyer or seller in the UK?

VAT is 20% in the UK. A buyer pays this to the seller when they purchase an item, product or service. There are also some cases where the seller pays the VAT by way of a self-accounting mechanism.

What is the difference between sales tax and VAT?

Sales tax is found in the United States and is a tax applied at state government level on the purchase of goods or services. VAT is a consumption tax and is collected by all sellers in a supply chain, not just charged to the final consumer.

Our large advisory team can help you navigate the complexities of modern VAT compliance. Don’t hesitate to get in touch today.

Country	Current VAT Rate		VAT Number Format
Country	Standard	Reduced	VAT Number Format
Germany	19%	7	Format: Nine characters. Example: DE 123456789.
Hungary	27%	5, 18	Format: Eight characters. Example: HU 12345678.
Romania	19%	5, 9	Format: From two to 10 characters. Example: RO 12, 123, 1234, 12345, 123456, 1234567, 12345678, 123456789, 1234567890.
Spain	21%	4, 10	ES X12345678, 12345678X, X1234567X Format: Nine characters. Includes one or two alphabetical characters (first or last or first and last).
Switzerland (non-EU)	7.7%	2.5%, 3.7%	Format: Nine characters, ends with MWST/TVA/IVA. Example: CHE 123.456.789 MWST.
United Kingdom (non-EU)	20%	5%	Format: Nine characters. Example: GB 123 4567 89.

B2C implications of the single VAT registration

Implications for online platforms selling into the EU

B2B implications of the single VAT registration

Are you equipped to tackle ever-evolving regulations?

myDATA Deadlines Postponed

myDATA reporting deadlines 2023

myDATA reporting deadlines 2024

myDATA next steps

How VAT works – a quick explanation

Who pays VAT, the buyer or seller?

Differences between Sales Tax and VAT

How does VAT work?

Responsibilities as a VAT registered business

What triggers the tax administration requirement?

Frequently Asked Questions

Is VAT paid by the seller or buyer?

Does the buyer pay VAT?

Do sellers pay VAT?

Who pays VAT, the buyer or seller in the UK?

What is the difference between Sales Tax and VAT?

Do you need help with VAT?

Scope of the rules for guarantee commitments

Effect on insurers and other suppliers

VAT Registration Threshold of EU Countries

What is the VAT registration threshold for EU countries?

VAT by Country EU

Common terms: Explained

VAT Destination Principle

VAT Origin Principle

Union OSS

Non-Union OSS

VAT intermediary

Deemed Suppliers

VAT thresholds

Cross-border supplies

Customs charges

Import duties

Frequently Asked Questions

Which EU country has the highest VAT?

Which EU country has the lowest VAT rate?

What is the minimum standard rate of VAT applicable in the EU?

Is VAT the same in all EU countries?

Do I pay VAT on EU purchases?

What is EU VAT threshold?

Do I need to register for VAT in the EU?

Important update: EU Member States today reached political agreement on the ViDA proposal

VAT in the Digital Age: Your Guide

What is VAT in the Digital Age?

Table of contents

Timeline of VAT in the Digital Age

eBook: What is VAT in the Digital Age (ViDA)?

VAT in the Digital Age for digital reporting and e-invoicing

ViDA for the single VAT registration

The platform economy and VAT in the Digital Age

How VAT in the Digital Age affects your business?

How Sovos can help you with ViDA

Frequently Asked Questions

Related content

eBook: What Is VAT in the Digital Age (ViDA) and How Does it Impact My Business?

Blog: Mandatory e-reporting and e-invoicing for EU Intra-Community Transactions

Blog: VAT treatment of the platform economy

What Is VAT in the Digital Age (ViDA)

What Is VAT in the Digital Age (ViDA)?

View the full eBook

What is the EU VAT Reform?

Want to learn more about EU VAT?

EU VAT Reform: A Timeline

EU Commission Proposes Major Reforms for EU Customs including Expansion of the IOSS Scheme

EU Customs Data Hub

Expansion of the IOSS Scheme

One year on for the One Stop Shop – the changes and challenges of the new e-commerce VAT scheme

The EU E-Commerce VAT Package – What Have We Learned Nine Months On?

How the EU E-commerce VAT Package has affected businesses

IOSS Four Months On

EU VAT reform and double taxation

Fraudulent IOSS VAT number usage

Issues with particular types of transaction

The EU E-Commerce VAT Package: Lessons Learned Two Months On

Delays and teething problems

Goods import issues