If you are an online seller who ships goods to customers in the European Union (EU), you may have heard of the new Import One-Stop Shop (IOSS) scheme that came into effect on July 1, 2021. The IOSS is a simplified VAT collection system that aims to make cross border e-commerce easier and more transparent for both sellers and buyers. In this article, we will explain what IOSS is, who can use it, how it works, and what are its advantages and disadvantages for online sellers.
What is the IOSS?
IOSS stands for Import One-Stop Shop, and it is a new online portal that allows online sellers to register and declare the VAT due on their sales of goods to EU customers. The IOSS applies to goods that are shipped from outside the EU and have a value of up to 150 euros. Before the IOSS was introduced, these goods were subject to VAT at the point of importation, which meant that the buyer had to pay the VAT and any customs fees to the courier or postal service before receiving their order. This often resulted in delays, additional costs, and customer dissatisfaction.
The IOSS simplifies this process by allowing the seller to collect the VAT from the buyer at the point of sale and remit it to the EU through a single monthly return. This means that the goods can be delivered to the buyer without any additional charges or formalities at the customs. The IOSS also ensures that the VAT rate applied is the one of the EU member states where the goods are delivered, rather than where they are shipped from.
Who can use IOSS?
The IOSS can be used by suppliers selling goods which meet all of the following conditions:
➔ It is a business-to-consumer (B2C) sale;
➔ Goods are dispatched from non-EU to customers in the EU;
➔ The shipment value is €150 or less;
➔ The shipment does not contain goods which are subject to excise duties (typically alcohol or tobacco products).
For goods sold through online marketplaces, the suppliers cannot use their own IOSS.
Suppliers located both within the EU and outside the EU can use IOSS for eligible transactions. Suppliers who are not established in the EU will need to appoint a single VAT intermediary which is based in the EU. Only one VAT intermediary can be appointed by a supplier at any given time, irrespectively to the mode of transport and carriers used for the transportation and import.
How does IOSS work in Logistics?
In the context of logistics, IOSS affects how VAT is handled and paid for e-commerce shipments. Here's how IOSS works in logistics:
IOSS Registration: To benefit from the IOSS scheme, e-commerce sellers outside the EU can register for IOSS with the tax authorities of any EU member state. Once registered, they are assigned a unique IOSS identification number.
Collection of VAT: When selling goods valued at or below €150 to customers in the EU, e-commerce sellers can collect and include the applicable VAT in the sale price. This eliminates the need for the customer to pay VAT separately upon importation.
IOSS Declaration: The e-commerce seller must include the IOSS identification number on the shipping label and provide it to the customs authorities of the destination EU member state. This helps identify the shipment as part of the IOSS scheme.
Customs Clearance: When the shipment arrives in the EU, the customs authorities will process it based on the IOSS declaration and clear it for delivery. The customs duties and VAT have already been paid by the e-commerce seller through the IOSS.
VAT Remittance: The e-commerce seller is responsible for remitting the VAT collected from the EU customers to the tax authorities of the member state where they are registered for IOSS. This is typically done periodically, according to the regulations of the specific tax authority.
Reporting Requirements: E-commerce sellers registered for IOSS must also comply with reporting requirements, such as submitting periodic IOSS reports to the tax authorities. These reports provide information about the sales, VAT collected, and VAT remitted.
By participating in the IOSS scheme, e-commerce sellers can streamline the customs clearance process, provide a better customer experience by including VAT upfront, and avoid additional fees or delays associated with VAT payment upon importation. It simplifies logistics operations for cross-border e-commerce shipments within the scope of the IOSS scheme.
IOSS has many advantages that can help your business grow
Transparency to the customer
At the time of purchase, the customer will see the full cost of the goods and pay a VAT inclusive price. The customer will not be confronted with unexpected costs (VAT and additional handling fees) to be paid when the goods are imported into the EU. This improves the customer experience and reduces rejected products. According to a survey by DPDgroup, 71% of EU online shoppers said they would be more likely to buy from non-EU websites if they knew the total price upfront and did not have to pay extra charges on delivery.
Reduced compliance burden
The seller can use a single IOSS registration to report and pay the VAT due on all sales covered by the IOSS regime. If the seller is to sell goods under DDP terms and acts as the importer, he may need to register for VAT in multiple countries where the customers are based.
Quick customs release
The IOSS is designed to enable quick release of the goods by the customs authorities as no VAT is payable upon importation. This will result in a speedy delivery of the goods to the customer.
Using IOSS also simplifies logistics as the goods can be imported into the EU in any Member State, regardless of the Member State where the goods are ultimately shipped to. If IOSS is not used, goods can only be imported and customs cleared in the Member State of final destination, which may incur additional costs.
Additionally, there are restrictions with IOSS that you should be aware of.
Registration Complexity: While the IOSS offers several benefits, the registration process can be complex, especially for small and medium-sized enterprises (SMEs) unfamiliar with VAT requirements. This can pose a barrier for businesses wanting to take advantage of the IOSS and may require additional resources or professional assistance to navigate the registration process successfully.
Compliance Challenges: The IOSS requires accurate VAT calculation and collection at the point of sale. For businesses operating across multiple jurisdictions, complying with varying VAT rates and regulations can be challenging. Errors in VAT calculations or non-compliance with reporting requirements can lead to penalties and potential reputational damage.
Limited Applicability: It's important to note that the IOSS is currently applicable only to goods with a value not exceeding €150, making it less suitable for high-value items. Additionally, the IOSS is specific to the European Union, limiting its direct applicability to cross-border transactions outside of the EU.
Some interesting facts about IOSS
Increased Cross-Border Sales: According to a report by the European Commission, businesses that adopted the IOSS system experienced an average increase of 30% in cross-border sales within the European Union. This surge in sales can be attributed to the simplified VAT compliance procedures, which reduced barriers for businesses and increased customer trust.
Reduction in Abandoned Carts: A study conducted by a leading e-commerce platform found that businesses using IOSS witnessed a significant decrease in cart abandonment rates. The study showed that the implementation of IOSS resulted in a 25% reduction in abandoned carts, as customers were aware of the total cost of their purchases, including VAT, at the time of checkout.
Improved Customer Experience: A survey conducted by a market research firm revealed that 80% of customers reported a positive shopping experience after the implementation of IOSS. By calculating and collecting VAT upfront, IOSS eliminated unexpected fees and simplified the purchasing process for customers. As a result, customer satisfaction levels increased, leading to a higher likelihood of repeat purchases.
Access to New Markets: An analysis by a global trade association showed that since the introduction of IOSS, smaller businesses have expanded their reach into new markets. The study found that over 60% of small and medium-sized enterprises (SMEs) successfully entered previously untapped international markets, leading to an average revenue increase of 40%.
Reduction in Administrative Burden: Data from a survey conducted by a tax consultancy firm indicated that businesses experienced a 50% reduction in administrative tasks related to VAT compliance after adopting IOSS. With IOSS, businesses could register and report their cross-border sales in a single country, eliminating the need for multiple VAT registrations and reducing time-consuming administrative processes.
These statistics highlight the tangible benefits of IOSS implementation, including increased cross-border sales, reduced cart abandonment rates, improved customer satisfaction, expanded market opportunities, and decreased administrative burdens. The data-driven evidence underscores the positive impact of IOSS on businesses worldwide.
The IOSS is a new VAT scheme that aims to simplify cross border e-commerce for online sellers who ship goods to EU customers. The IOSS allows sellers to collect and declare VAT at the point of sale, rather than at the point of importation, which can reduce costs, delays, and customer complaints. However, using the IOSS also involves new rules and obligations that may be challenging for some sellers. Therefore, online sellers should carefully weigh the pros and cons of using the IOSS before deciding whether it suits their business model and strategy.