One Stop Shop: How The EU Regulation will Affect Your Business
After years of preparation and hard work by the European Commission, the much-anticipated VAT reform finally came into force. The most significant reform of the EU VAT system brings many changes for online sellers and tax consultants with several pitfalls.
The One Stop Shop (OSS) scheme is a new simplified approach to the VAT registration and reporting process for cross border B2C (business-to-consumer) sales made within the EU. Under OSS, the seller is required to register only once in their member state of residence. In other words, applying the principle that taxation should take place where value is created.
The EU Regulation
It all started with a movement. Back in 2017, EU Member States agreed on several reforms that would streamline VAT registration in the EU. The idea was to simplify registration with VAT authorities, reduce procedure times for businesses to collect VAT, and improve transparency. Meanwhile, VAT registration costs for eCommerce businesses grew more extensive than ever before. The growth came alongside increasing numbers of companies, with the EU noticing a 28% increase in the number of VAT registrations between 2014 and 2015. Because of this increase in VAT registration numbers, the European Commission decided to call upon the Council and the European Parliament to simplify VAT registration.
The One Stop Shop Scheme
International sales to end customers in the EU will have to be taxed in the destination country after reaching an EU-wide standard threshold. OSS is the solution that will ensure tax is calculated and divided fairly among EU member countries. With OSS, you can make VAT declarations and payments from your country of residence and submit your VAT forms via the unique platform. The relevant tax authority from your country of residence or registration will then distribute reported revenue to other member countries. There is no more need to register for a VAT number in different member states or work with multiple tax authorities.
Previously the system depended on distance-selling thresholds, which ranged from €35 000 to €100 000. Once you reached the threshold, you had to register with the local tax authority and start paying VAT to each specific country on all purchases from that point forward. Since countries had different procedures and tax rates, it proved to be a complicated and lengthy process.
From July 1st, the distance-selling threshold is set at EU level at €10 000. This applies to all cross-border sales and digital services. Once you reach it in a calendar year, all further sales will have to be taxed in the destination country.
OSS and your business
Online trade regulated through OSS will be a significant simplification for companies that operate through a single warehouse located in the EU. OSS is used to report distance sales from one EU country to another.
However, the situation is not that clear for intra-community movement and purchases. A good example is Amazon FBA. Consumers want to receive their goods as fast as possible, which requires Amazon to have warehouses all over the EU. Unfortunately, their goods arrive at a central warehouse and are later transported to local warehouses based on purchase history and projected needs. These transactions are too complicated for OSS to track, so you still need to disclose sales via local registrations.
This means you will need to report:
- All distance sales through OSS in your country of registration
- Intra-community movements and local sales via local registrations in each individual country
Taxes with the OSS
EU countries have vastly different tax systems and tax rates. With the EU-wide cross-border sales threshold, you will likely become tax-liable in most of the countries. So, how are you supposed to know which tax rate to apply to your products in different EU countries?
The matter becomes even more complicated once you realize most countries have reduced or special tax rates for specific products. This makes manual tax input almost impossible as you would have to know the workings of every tax system in the EU. We see the solution to the problem in using automation.
For example, by using custom tariff numbers or some similar unique characteristic, you can categorize each product and leverage existing databases to determine tax rates automatically.
The latest VAT reform brings many improvements to the table but still has plenty of downfalls, especially for users of cross-border fulfilment structures like Amazon FBA. The good news is that you can still use OSS and local registrations simultaneously to ensure you can cover all of your sales and VAT obligations in the EU.
If you need help with figuring out which scheme to use or what VAT rates to apply to your products, send us an email. We at eVAT will be more than happy to make sure you get the most out of OSS.
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