New VAT Rules from 1st July 2021
Important new VAT rules apply from 1st July 2021. These rules will impact on the following transactions:
- Intra-EU “B2C” supplies of services.
- Intra-EU Distance Sales of goods.
- Importation of goods from non-EU countries.
If your business involves any of these transactions, you should read the following carefully.
Remember that the U.K. is not an EU member state anymore.
We are extremely conscious that many businesses are not very familiar with the jargon that applies to VAT. We have tried to simplify the position for you as much as possible. If, however, you have any difficulties or queries, please call your usual PSC contact.
Before we begin, we would like to remind you of our previous circulars regarding VAT & Brexit:
- A summary of the VAT rules can be accessed here
- A summary of the “postponed accounting” rules can be accessed here; this allows most VAT registered traders to import without a VAT cashflow cost
- One Stop Shop (OSS)
This new arrangement covers:
- Intra-EU “B2C” supplies of services.
- Intra-EU Distance Sales of goods.
These new changes are actually simplification measures and are designed to assist businesses.
What is an Intra-EU “B2C” Supply?
These are sales (supplies) to persons who are not VAT registered within the EU. This includes private individuals.
What is an Intra-EU Distance Sale of Goods?
Generally, distance selling is carried out by internet traders or mail order catalogue traders who supply physical goods. For example, an Irish VAT registered trader may advertise his/her physical goods on the internet to consumers in other EU Member States.
Up until 1st July 2021, that business would have been obliged to register for VAT in each member state that they sold goods to (subject to any de minimis registration thresholds that applied in each of those countries). This could have led to significant administration and time costs, not to mention VAT exposures in those other countries.
From 1st July 2021, that business can now nominate one EU member state to deal with all VAT obligations. For Irish businesses, they will invariably choose Ireland. Therefore, sales to all member states can now be dealt with through one OSS VAT return; and with that return being an Irish return.
This will simplify VAT obligations very significantly for those affected businesses.
One disadvantage of the OSS, particularly for smaller suppliers, is that the annual registration threshold reduces to €10,000; in other words, if the value of the relevant sales to all member states per annum exceeds €10,000 (both goods and services), you must apply these new rules if you opt for the OSS. (This is a separate VAT registration threshold than the €37,500 / €75,000 threshold that you apply for your domestic businesses.)
The OSS is not mandatory. However, if a business does not opt for these simplification measures, they continue to be obliged to register and apply VAT in each relevant member state (subject to any de minimis registration thresholds).
If a business opts for the OSS, then all transactions falling under the OSS must be covered, i.e., both the Intra-EU B2C Supplies of Services and the Intra-EU Distance Sales of goods.
What does this mean from a practical perspective?
From 1st July 2021, any business opting for the OSS must now:
- Register electronically under the One Stop Shop (OSS) VAT regime in Ireland.
- Submit an OSS VAT return on a quarterly basis; only one return is needed regardless of the number of EU member states that you are selling into
- Certain information must be included on each return (see Appendix III of the attached)
- Pay VAT to (Irish) Revenue, in respect of all sales of goods and services under the OSS Scheme.
- The OSS reference will be the same as your VAT reference
Please note that the VAT rate will be the VAT rate that would apply in each member state of consumption. Information on the VAT rates applicable in each member state can be found by clicking on this link or by looking at the website of the tax authorities in the particular country.
If you incur VAT in any other EU member state, you cannot reclaim this under the OSS return. Instead, you must make a separate claim. A link to this process can be found here
Not Covered in this Circular
There are two types of schemes: OSS, i.e., a “union scheme” and a “non-union scheme”. The “non-union scheme” relates to businesses which are not established in the EU.
There are “deemed supplier” provisions which relate to persons who provide an “electronic interface” (for example, online marketplace, platform, portal, etc.) to link a supplier and a customer.
- Importation of Goods from Non-EU Member States (Import One Stop Shop – IOSS)
This new arrangement allows a supplier to nominate one EU member state, to account for VAT on sales made into various EU member states. It therefore facilitates businesses who are importing into multiple member states.
The IOSS is separate to the OSS outlined above.
This will affect two different types of persons:
- Persons (both business & private consumers) who are importing goods from outside the EU for their own use, and
- Businesses (including Irish businesses) who are importing goods from outside the EU for onward sale
Where the IOSS is used, the seller will charge and collect VAT at the point of sale to EU customers; and declare and pay that VAT to one particular EU member state. These goods will then benefit from both VAT exemption under importation and quick release from Customs. This is very beneficial for the customer, as they should not have to deal with any unexpected costs or delays in delivery. Where the IOSS is not used, import VAT will continue to be collected from customers by the Customs Agent, (e.g., Postal Operator, Customs Agent, Courier Firm, etc.) who will then pay it to the relevant Customs Authorities.
Special arrangements for import VAT are also being introduced which will mostly impact on Postal Operators, Custom Agents, Courier Firms, etc.
It is important to note that the IOSS only apply for consignments of up to a value of €150. In other words, where the consignment is greater than €150, the customer (in Ireland) will still have to deal with VAT issues, i.e., will have to pay VAT on importation, probably via a Postal Operator, Customs Agent, Courier Firm, etc.
The other import change being made is that the current Low-Value Consignment VAT Relief of €22 will be abolished from 1st July 2021 and all goods imported into the EU will now be subject to VAT. (The current Customs Duty exemption for goods imported into the EU up to a value of €150 remains unchanged).
The IOSS allows suppliers to register and declare import VAT due in all member states through a monthly IOSS return in that member state where they have registered for the scheme. For Irish businesses who wish to register, this will probably mean Ireland.
Why introduce these new OSS / IOSS measures?
- It simplifies VAT obligations for businesses selling cross-border to consumers in the EU
- There has been a high level of non-compliance up to now
- The same principles outlined above already apply to certain other services (telecommunications, broadcasting and electronic services). This scheme has been so successful that it is now being applied now to a much broader range of supplies
Should you require any further information on the above, please do not hesitate to call or email your usual PSC contact.