VAT: IOSS isn’t that simple for small parcels?
The Import One Stop Shop (IOSS) aims to simplify cross-border VAT for consumers. The scheme goes live on 1 July 2021, but already some GB based taxpayers are finding some unexpected complications.
What is IOSS?
The import one stop shop is an EU wide scheme; the aim is to simplify the movement of goods not exceeding €150 (£135) to consumers (B2C). Without IOSS, non-EU sellers who ship goods into the EU will see the consumer incur import VAT which the consumer must pay to receive their goods.
To improve the customer’s experience, the seller can register for IOSS, then the seller charges VAT to the EU consumer, using the EU consumers local VAT rate. The goods are then shipped clearly showing that VAT has been charged and are delivered with nothing else for the consumer to pay. The seller submits an IOSS return and pays over the various VAT amounts they have collected from their EU customers at point of sale.
An EU based business can register for IOSS with their local tax authority. For businesses based outside of the EU, such as in Great Britain (GB), the received wisdom has been to register for IOSS in Republic of Ireland, mainly because of the use of the English language.
The Republic of Ireland recently published its IOSS guidance and the surprise is that a non-EU business cannot directly register for IOSS, registration can only take place via an intermediary.
An intermediary is an agent, usually an accountant appointed to register and file your VAT/IOSS returns. A trader based in GB may have thought they could register for IOSS themselves but seemingly that is not the case, and the trader will need to engage with a local (Irish) Accountant to register and submit the IOSS returns.
“If a non-EU established supplier wishes to register for the IOSS, they can only do so directly if they are established in a country that the EU has a VAT mutual assistance agreement in place with and the goods are supplied from that country to the EU. In those cases, the supplier can register directly in the Member State of their choosing.
In all other cases, a non-EU established supplier must register for the IOSS indirectly through the appointment of an intermediary. The registration of the supplier will be done through the intermediary they have appointed to represent them, and the Member State of registration will be the Member State where the intermediary has established their business.”
The wording suggests that there are two conditions for directly registering for IOSS:
- there is a VAT mutual assistance agreement in place; and
- the goods are originating from GB.
The reference to VAT mutual assistance agreement is unclear. The EU law does not require a fiscal representative or intermediary for companies not established in the EU but where there is a mutual assistance agreement in place.
What do EU member states say?
The EU/UK Trade Agreement does include a tax and VAT mutual assistance agreement, but experience so far indicates confusion between EU member states on its application.
Some countries like France have accepted there is mutual agreement and fiscal representatives are not required, but Portugal has stated the opposite, not recognising the mutual agreement. The Republic of Ireland are saying they do not recognise the mutual assistance agreement, at this stage, and so an intermediary is required. Other EU member states are still to decide.
The trader could consider setting up a legal entity in Ireland. Perhaps it could attempt to register for VAT in France, or engage a French accountant to do the registration but leave the filing of returns to the business. Otherwise, there was inevitably a cost to registering for IOSS as even without the intermediary requirement, it would be wise to seek professional assistance to ensure registration and returns are submitted correctly.
Whilst the uncertainty on legal interpretation will resolve itself in time, if you are a business contemplating using IOSS, then please do not wait until July. The window for applications is now open and the time is now to start this journey.
HMRC have stated that it aims to open registrations for One Stop Shop (OSS) for Northern Ireland based traders, who are treated as being still within the EU for certain VAT purposes. This suggests there is a mutual assistance agreement in place, even if some member states don’t agree.
A HMRC spokesperson said:
“The Import One Stop Shop scheme (IOSS) is an EU system, with use and access governed by EU law. IOSS is an optional system for businesses to use, and where a business opts to use IOSS they will need to follow the EU guidance. Businesses that choose not to opt for IOSS will still be able to continue to export goods to the EU, with any import VAT due continuing to be collected from the recipient.”
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