If you are either an EU or non-EU seller that sells within the EU region, take note of the following changes starting July 01, 2021.
Starting July 01, 2021, all EU VAT-free goods – goods that are valued at EUR 22 or below – will now be charged with VAT. This means that all products that are imported to the EU will now be charged.
EU VAT: Before and After
Originally, goods that are imported to EU that is valued at EUR 22 or below are exempted from VAT unless the seller is located within the EU region. However, the authorities noted two problems with this VAT exception:
- EU sellers who sell within the EU are at a disadvantage since they need to pay for VAT (even for goods that are valued at EUR 22 or below). EU VAT exemption is only applicable to non-EU sellers who sell within the EU region.
- The VAT exemption causes many fraudulent activities as many sellers deliberately under declare their goods’ value to get the VAT exemption.
For these two reasons, the EU had decided to remove the VAT exemptions starting from July 01, 2021.
Introducing the Import One-Stop Shop (IOSS)
One of the reasons why low-value goods are VAT-free is because low-value goods come in relatively huge volume. If customs were to charge VAT for low-value goods, the process of customs clearing will be very complicated and slow due to the volume that they receive.
However, now that VAT exemption is abolished for low-value goods, the problem of efficiency and added cost for accounting and charging VAT on low-value goods needs to be address again. For EU, the solution is the Import One-Stop Shop or IOSS.
- The IOSS is an electronic system that sellers can use to streamline the VAT payment and customs clearance process. The process is simple:
- If the seller opts to register to IOSS, they should register at one EU state. This is where they will settle their VAT even if they may sell in other EU states other than the state they registered in. In short, you only need to pay your VAT obligations to one country even though you may sell to different countries in the EU.
- Once registered, your goods will have an electronic IOSS identification number in them. Every time your goods are imported to any country within the EU region, EU’s customs will immediately recognize the IOSS identification number, making it quicker for them to clear the products.
It is important to note that the IOSS is only applicable for online stores since digital transaction is required to use the system.
Benefits of IOSS
Aside from streamlining the customs clearance process, IOSS can benefit both the seller and the customer.
On the part of the seller, if they opt to shoulder the VAT expense, the IOSS streamlines the VAT payment on their behalf. Instead of individually settling the VAT per order, the accounting will be streamlined electronically. Then, all VAT will be filed and settled in a quarterly basis on the EU state which you registered IOSS for.
On the part of the buyer, the IOSS simply relieves them of additional charges since the seller already shoulders the VAT. This can increase the customer experience of your business.
Who Can Apply For IOSS?
Both non-EU, including sellers in the UK, and EU sellers can apply for IOSS. EU sellers can benefit from the IOSS since under this system, they’ll only need to settle on one EU country when filing for VAT instead of settling VAT on different EU countries.
Should You Apply For IOSS?
It is not required to file for IOSS if you are selling to the EU market. Should you opt not to apply for IOSS, you will then need to collect and settle VAT in the regular way.
How Much Value of Goods Is Applicable to the IOSS?
Goods that are valued at EUR 150 or less are applicable to the IOSS. However, goods that are valued at more than EUR 150 will not be covered in the IOSS.
Learn More About IOSS
FAQ on IOSS and New EU VAT for Fulfillmen Clients
If you are a Fulfillmen client and you are concerned about how to go forward with the new EU VAT system, this FAQ may help you. Please read through as some of your questions may be addressed here.
1) Do you (as Fulfillmen client) need to apply for IOSS number in EU?
Yes, you need to apply for IOSS number in EU. However, if you don’t have an IOSS number yet, you can use the prepaid service so that you can deduct the cost from the express shipping account.
2) How much it will cost if you use the prepaid or prepayment service?
If you do not have an IOSS number and you use prepaid service, the cost will be prepaid service (based on the country) plus 2% handling fee. For example, in France, the prepaid service usually is around 20%. So, if you ship to France, you will need to handle 20% prepaid service plus 2% handling fee.
3) Do you need to pay the prepaid service if you use the IOSS system?
No, but you must be registered in IOSS and have an IOSS number before you can ship your goods.
4) Who will pay the taxes if the seller used IOSS system?
The seller. The buyer does not pay the taxes and charges if the seller opt to use the IOSS system.
5) What will be the process when declaring the value of your goods?
We will declare the value of your goods “as is”. If we try to lower the value of your goods even just a little bit, it can cause serious trouble for your business such as customs detention and possibly other legal charges. It is better to be truthful when declaring your goods than try to avoid high charges but risk serious consequences.
To know the Value Added Tax of each country please refer to this document: