Overview of the new VAT rules taking effect on 1 July 2021
The EU VAT rules will change from 1 July 2021 when two new VAT schemes take effect: the OSS special scheme, which is for services, intra-Community distance sales of goods and sales of goods through an online electronic interface, and the IOSS special scheme, which is for distance sales of goods imported from non-EU countries.
In essence, the new schemes will allow suppliers to declare the VAT for all their cross-border B2C (business to consumer) sales in all member states on a single return and to pay the VAT in their own member state without having to register for VAT in all member states where the final consumers reside.
The use of the OSS and IOSS schemes is optional. Sellers that do not wish to use a special scheme will have to register for VAT in all member states where the final consumers of their goods or services reside. It will also be possible to complete customs formalities for imported goods in the regular manner without using the IOSS.
It has been possible to submit applications for registration for the special schemes since 1 April 2021. Businesses will be registered as users of the schemes from 1 July 2021.
OSS special scheme
The OSS (One Stop Shop) scheme is an extension of the MOSS scheme (the Mini One Stop Shop scheme applicable to the taxation of the supply of digital services to non-taxable persons in other member states) to other services whose place of supply is another member state, intra-Community distance sales and, in certain circumstances, sales of goods through an online electronic interface (an online shop).
Use of the special scheme simplifies the performance of VAT obligations that arise for a business in another member state. A business that has chosen to use the special scheme declares the supply which takes place in another member state and pays the related VAT to the Estonian tax authority.
The OSS scheme is applicable to services provided to non-taxable persons in other member states, the place of supply of which is the member state where the consumer of the service resides, such as services related to immovable property (construction, valuation), cultural, artistic, sports, educational, scientific and entertainment services (shows, performances, concerts, exhibitions), vehicle rental services, etc. (Value Added Tax Act, section 10 (4)).
A non-EU business whose seat is outside the EU and which has no permanent establishment in any EU member state can use the special scheme on the sale of goods located in Estonia to a final consumer through an online shop.
The member states’ existing thresholds for intra-Community distance sales will be abolished and replaced by a new EU-wide threshold of 10,000 euros applicable to the total supply of intra-Community distance sales of goods (goods sold to all member states) and digital services provided to final consumers in other member states. If the threshold is not exceeded, the supply may be taxed at the VAT rate of the country of the seller. When the threshold is exceeded and the OSS special scheme has been chosen, intra-Community distance sales of goods and digital services provided to final consumers have to be taxed at the VAT rates of the member states where the final consumers reside, but the VAT payable to other member states can be paid via the Estonian tax authority. As an exception, in 2021 the 10,000 euro threshold will apply from 1 July.
As regards services, the threshold can only be applied to digital services and not to other services whose place of supply is the country of residence of the final consumer. It must also be taken into account that if the seller has a permanent establishment in another member state, then it cannot apply the 10,000 euro threshold to the distance sales of goods and provision of digital services in that member state, and the VAT for the supply of the goods and services must be declared in that member state using the standard procedure.
Who can register for the OSS scheme in Estonia?
In Estonia, the OSS special scheme can be used by:
- a taxable person whose business has a seat in Estonia even if it has a permanent establishment in another member state;
- a non-EU business which has a permanent establishment in Estonia and sells goods or provides services covered by the special scheme;
- a non-EU business which does not have a permanent establishment in the EU but which provides services covered by the special scheme to a non-taxable person in any member state;
- a non-EU business which does not have a permanent establishment in the EU but which conducts intra-Community distance sales of goods from Estonia or enables, via an online shop, another non-EU business (which has no permanent establishment in the EU) to conduct intra-Community distance sales of goods from Estonia or to sell goods located in Estonia to a non-taxable person in Estonia.
The special scheme will be apply from the first day of the quarter following the quarter in which the application was submitted to the tax authority. For example, if the application is submitted in August, the special scheme will automatically apply from 1 October.
As an exception, the special scheme can be applied from the day on which the first transaction covered by the scheme was conducted, provided that the application for the scheme is submitted by the 10th day of the month following the month of supply at the latest. In that case “the date of first transaction” must be filled in on the application.
Businesses that previously used the MOSS scheme and wish to continue with the OSS scheme do not have to submit a new registration application. Their valid application will be automatically transferred.
IOSS special scheme
The IOSS (Import One Stop Shop) special scheme is for distance sales of goods imported from non-EU countries.
The VAT exemption for import consignments with a value of up to 22 euros will be abolished from 1 July 2021 and the IOSS scheme will be introduced to simplify the declaration of import VAT for low value consignments.
So that buyers would not have to submit a customs declaration and pay VAT when the goods arrive in the EU, the sellers of the goods can use the IOSS scheme and collect VAT from the buyers (when the buyers pay for the goods) and declare the VAT to the tax authority in their monthly IOSS returns.
Sellers that use the IOSS scheme can add the import VAT to the sales price of the goods already at the point of sale. Therefore, as a rule, buyers will not have any additional tax obligations when they receive the goods.
Businesses that choose to use the special scheme can register for the scheme in one member state and declare and pay VAT on the import of the goods covered by the scheme in that member state without having to do it in every member state to which the goods are imported.
The IOSS scheme is applicable to consignments which are imported for final consumers whose place of residence is in the EU, which at the time of conclusion of the purchase and sales contract are located in a non-EU country, whose intrinsic value does not exceed 150 euros and which are not subject to excise duty. Intrinsic value comprises the price of the goods sold, excluding transport and insurance costs (unless the costs are included in the price and not separately indicated on the invoice submitted to the buyer) and any other taxes and charges identifiable by the customs authorities from relevant documents.
Who can register for the IOSS scheme in Estonia?
- a taxable person whose business has a seat in Estonia and, similarly to the OSS scheme, the taxable person can register for IOSS only in Estonia;
- a non-EU business which has a permanent establishment in Estonia and conducts distance sales of goods imported from a non-EU country via an online shop;
- a non-EU business which has no permanent establishment in the EU and conducts distance sales of goods imported from a non-EU country via an online shop. On registering for the IOSS scheme, the non-EU business (excluding businesses from Norway) has to appoint an intermediary that will fulfil the obligations related to the scheme on behalf of and in the name of the non-EU business.
To register for the IOSS scheme, a business will submit an application to the tax authority. Users of the IOSS scheme will receive a registration number (the number of an IOSS importer with the letter combination “IM”) which can only be used in applying the scheme. The country of registration forwards the registration number of a business to the tax authorities of all EU member states and the number is valid across the EU.
A non-EU business which has neither seat nor place of business in the EU, can use the special scheme by appointing an intermediary that fulfils the obligations arising from the special scheme in the name and on behalf of the person that appointed it. In Estonia, persons can act as intermediaries for the IOSS scheme if they are registered in the Estonian Commercial Register, are registered as VAT payers in Estonia, are solvent, have an impeccable reputation and have no tax arrears. A user of the special scheme can have only one intermediary.
The intermediary must first register as a user of the IOSS scheme and receive a number of an IOSS intermediary (with the letter combination “IN”). After that the intermediary can submit applications for adding the persons for whom it acts as an intermediary. The intermediary will receive a number of an IOSS importer (with the letter combination “IM”) for each person for whom it acts as an intermediary; the same number is recorded on the customs declaration.
The database of the IOSS registration numbers is not public. It is available only to customs authorities which use it to automatically check the validity of a number. If the registration number recorded on the customs declaration is valid, the customs authorities will release the goods into free circulation without demanding payment of VAT. The person who declares goods to the customs authorities (e.g. a postal operator, express company, customs agent, etc.) cannot check the validity of an IOSS registration number.
The IOSS special scheme can be used from the date the person or intermediary has received the required registration number.
Submission of the OSS and IOSS returns
The OSS return:
- The OSS return is submitted quarterly, by the end of the first month of the next quarter (e.g. 31 October 2021 is the first deadline for the submission of the quarterly OSS return) and the VAT payable according to the OSS return must be paid by the same date.
- The OSS return submitted in Estonia is also used to declare the goods / services covered by the special scheme which are supplied by permanent establishments in other member states if the place of supply of the goods / services is not the member state where the permanent establishment is located (supplies made in the member state where the permanent establishment is located are declared on the standard VAT return submitted in that member state).
- If the data reported on an OSS return need to be changed, this is done on the next OSS return and not by correcting the earlier return. This is a fundamental change compared to the current MOSS return.
IOSS return:
- The IOSS return is submitted monthly, by the end of the month following the month of supply (e.g. 31 August 2021 is the first deadline for the submission of the monthly IOSS return) and the VAT payable according to the IOSS return must be paid by the same date.
- If the data reported on an IOSS return need to be changed, this is done similarly to the OSS return on the next IOSS return.
If you have any questions regarding this topic or if you need any help with registering and/or submitting returns, please contact us. BDO experts will be happy to assist you.