The 2021 e-Commerce Europe VAT Package

Simplifying cross-border B2C trade in the EU

From 1 July 2021, the EU will introduce its e-Commerce VAT Package. The package replaces existing distance-selling rules and extends the Mini One Stop Shop (MOSS) into a wider-ranging One Stop Shop (OSS).

This represents a significant change to VAT rules for B2C supplies of goods and services, both as imports to the EU as well as intra-EU trading. The new, significantly lower pan-EU threshold (€10,000) will impact most businesses and they will need to account for VAT on more supplies.

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What is the 2021 e-Commerce Europe VAT Package?

Compared to the requirement for multiple VAT registrations under longstanding distance selling rules, with the OSS simplification, businesses register in one Member State and report all EU transactions through a single OSS return filed periodically. Payments are collected and distributed from the tax authority in this Member State to others where the VAT is due.

The EU e-Commerce VAT Package introduces three schemes under OSS:

  • Import One Stop Shop (IOSS) – for low value goods (≤ 150€) delivered from outside the EU
  • Union One Stop Shop (Union OSS) – for intra-EU B2C deliveries of goods and services
  • Non-Union One Stop Shop (non-Union OSS) – non-EU to EU services (previously the Mini One Stop Shop, MOSS)

From 1 July 2021: The EU e-Commerce VAT Package is due to come into effect. Whether or not a business decides to use the OSS schemes, they will have to account for VAT in all countries where they have a VAT liability. This may result in additional VAT registrations being required. 

Quick Facts

  • If a business opts to leverage the OSS simplification it must be applied to all qualifying transactions.
  • Additional record-keeping is required for OSS: Businesses using any of the OSS reporting schemes must retain more detailed records of transactions than they may have been used to. This additional data may be requested by tax authorities and used in audits to check VAT has been applied appropriately.
  • Declarations for Union and non-Union OSS are quarterly. The submission deadline will change to the last day of the month following the return period. Declarations under IOSS are monthly.
  • Businesses can correct previous OSS returns in the next OSS return. This is instead of correcting the original submitted OSS return.
  • Businesses established in the EU may only register for OSS in the Member State of establishment.
  • Non-EU businesses may need to appoint an intermediary and obtain an IOSS VAT registration in the intermediary’s country of establishment in the EU.
  • Non-Union OSS registrations can be in any Member State of the business’ choosing although this may be dictated by the location of a chosen intermediary, if required. If already registered under MOSS, existing registration will continue.
  • Depending on the nature of business activity/supply chains, non-EU retailers may need to report under all three schemes. They will also need at least one ‘standard’ VAT registration and possibly more due to warehouses or similar. 
  • EU businesses may have to report under OSS and IOSS as well as local registrations.

Penalties

Failure to submit returns and make payments or notify the relevant tax authority of a significant change in supply chain (e.g. warehouse) on time can result in penalties being imposed in each Member State where VAT is due or even expulsion from the scheme. Consequently, the penalisation of a single late return in multiple countries creates significant exposure to penalties.

Repeated noncompliance can result in exclusion from the OSS schemes. The taxpayer then needs to register for VAT in all Member States where it has a VAT liability.

If expelled from the scheme, the two-year exclusion period could have significant commercial consequences as compliance costs are likely to increase and new VAT numbers will be required urgently.

Exclusion from IOSS will require the business to change its commercial arrangements with its customers which could have a significant impact on sales or increase compliance costs

How Sovos helps companies navigate the new EU e-Commerce VAT Package requirements

Implementing the changes required to comply with the EU e-Commerce VAT Package into your ERP system could take significant time and resources. Sovos can help ease the tax burden and help you prepare for and understand the right solution for your business.

Our large advisory team can help you navigate the complexities of modern VAT compliance.

Contact us to discuss how we can help your company prepare for the digital future of tax.