VAT OSS and VAT IOSS – simplified procedure

VAT OSS – One Stop Shop

The VAT OSS Simplified Procedure – One Stop Shop, which came into force on July 1st 2021, is an alternative method of VAT settlement for distance sales of goods for European Union entrepreneurs selling remotely to individual customers within the EU. The main principle of this system, is that declarations and output tax are submitted to the Tax Office in the country of the company’s headquarters, and it will be the Tax Authorities of that country that will provide the amount to local Tax Offices in other EU countries. It will be possible to settle all transactions in a single return in Euro currency, and the returns themselves will be filed quarterly.

The distance sales threshold has been lowered to €10,000 or PLN 42,000 as of July 1st 2021. This is the combined total of the distance sales limit to all European Union countries. Once this limit is exceeded, with no local VAT numbers in other EU countries and distance sales, invoices must be issued with the destination country’s VAT rate and these sales must be reported in the OSS VAT return.

The project was passed by the Parliament with no changes to European law, and it consists primarily of differentiating VAT accounting according to the business model.

First model

If you own a warehouse (own, Amazon, rented, other) in an EU country, you cannot use the simplified model for VAT settlements in that country, and obtaining a local VAT number and periodic declarations are still required. When owning a warehouse, full registration and filing of declarations in the country of supply applies to you as previously.

Second model

If your sales are limited to distance sales only from your country of residence within the EU and you do not have warehouses in another country, i.e. the goods are shipped directly to the individual customer, then you can act in two ways:

• If you have full registration in EU countries then you don’t have to opt out, this is a voluntary registration for VAT. Your business will continue to operate as before, and sales will be made with the VAT number of the country of supply. In this solution, invoices must still be issued with the local VAT number and local VAT rates.
• If you want to use the OSS model, and you already have VAT registration in other countries, then you will have to deregister from VAT there and register for OSS in the country of establishment. In this case, invoices will be issued with the VAT number of the country of residence and with local VAT rates in line with those of the consumer countries.

Third model

If you have warehouses in some countries, and you sell to others by mail order from the EU territory, there is a possibility of a hybrid solution, i.e. maintaining active VAT numbers in countries with a warehouse, and in countries of remote sales accounting under the OSS system (reporting to the Fiscal of the country of residence). In this solution, invoices to customers in countries where you have a warehouse should be issued with the local VAT number and rates, and to mail-order customers in countries where you only sell remotely, invoices with the TIN of the country of residence but local rates.

Importantly, the above does not apply to B2B transactions, which still need to be accounted for in domestic declarations as before.

VAT IOSS – Import One Stop Shop

Import One Stop Shop (IOSS) is an alternative VAT settlement method for distance sales for non-EU businesses selling remotely to customers within the EU. The procedure applies to distance sales of imported goods, the value of which does not exceed €150. This is closely related to changes with the importation of small consignments – as of July 1st 2021, the relief for consignments with a value of less than €22 imported or entering the European Union has been abolished. For shipments from outside the EU worth more than €150, customs clearance and payment of import VAT is still mandatory.

The use of the VAT IOSS procedure is completely voluntary, the seller is not required to register, moreover, there are no limits that, if exceeded, would require the seller to join the procedure.

If the seller decides to register for VAT IOSS then they are obliged to collect and remit VAT to the consumer’s country at the rate applicable in that country. The second option is for the tax to be collected by the person or company making the customs declaration, such as a courier company or the Post Office.

Sellers will be able to use the procedure in the following ways:

• Directly: if the seller is established in the EU, they can settle imported VAT in one monthly return in the EU country where they are registered for VAT.
• Indirectly: if the seller is not established in the EU they are obliged to settle through an intermediary who is established in the EU.

Norway is an exception here – sellers from Norway have the option to register for IOSS directly without having to cooperate with an intermediary. However, if the goods will also be supplied from the territories of other third countries, it will not be possible to use the IOSS VAT procedure directly.

An additional benefit of IOSS is also a convenience for customers buying goods imported from outside the EU – the amount of VAT they are obliged to pay is already collected at the time of purchase. If a trader chooses not to register for IOSS the buyer will only pay the VAT amount when the shipment arrives, along with possible additional charges for customs clearance.

Importantly, not all supplies of goods are subject to settlement under the IOSS procedure. Excluded are:

• goods subject to excise taxes (such as alcohol and cigarettes) and used goods (such as refurbished phones or laptops),
• goods which value exceeds €150,
• goods sent to a B2B recipient,,
• goods that are subject to VAT-MARGE.

Penalties for late submission of VAT OSS returns

The VAT One-Stop Shop (VAT OSS) has emerged as a game-changer for businesses involved in cross-border sales of goods and services within the European Union. This system simplifies VAT obligations by allowing businesses to declare and pay VAT in multiple Member States via a single e-return. However, like any tax-related process, compliance with deadlines is crucial. Late submission of VAT OSS returns can result in penalties that could impact a business’s finances and reputation.

The importance of timely submission

Submitting VAT OSS returns on time is essential for maintaining good standing with tax authorities and ensuring the smooth operation of your cross-border business activities. The VAT OSS system relies on accurate and up-to-date information to calculate and allocate VAT correctly among the Member States. Any delays in submitting returns can disrupt the proper functioning of this system, potentially leading to incorrect VAT reporting and payment.

Understanding Penalties

Penalties for late submission of VAT OSS returns can vary depending on the jurisdiction and the duration of the delay. It’s crucial to familiarize yourself with the specific rules and regulations of the EU Member States in which you conduct business. Here are some common penalties that businesses may face for late VAT OSS return submissions:

• Late submission penalties. Most tax authorities impose penalties for failing to submit VAT OSS returns on time. These penalties may be a fixed amount or a percentage of the VAT due, and they typically increase the longer the return remains outstanding.
• Interest charges. In addition to late submission penalties, tax authorities may also charge interest on the outstanding VAT amount. Interest rates can vary, but they are generally designed to encourage prompt payment of taxes owed.
• Suspension or termination of VAT OSS privileges. Repeated instances of late submissions can lead to more severe consequences, such as the suspension or termination of your VAT OSS registration. This could require you to register for VAT in each individual Member State, eliminating all of the benefits of the OSS system.
• Reputation impact. Late submission penalties can damage your business’s reputation among customers, suppliers, and partners. Timely and accurate tax compliance reflects positively on your business’s professionalism and reliability.

Mitigating the Risk of Penalties

To avoid penalties for late submission of VAT OSS returns, consider implementing the following practices:

• Set reminders. Utilize digital tools, calendars, or automated reminders to ensure you don’t miss submission deadlines.
• Plan ahead. Allocate sufficient time for data collection, verification, and submission to prevent last-minute rushes that could lead to mistakes or delays.
• Stay informed. Keep up-to-date with changes in tax regulations and deadlines in the Member States where you operate to ensure compliance.
• Seek professional advice. If you are unsure about any aspect of your OSS VAT return or are too busy running your business, leave the VAT with us. We will take care of the compliance and reporting of your VAT returns. We will also let you know in advance when we need to receive the data.