As of the 1st of July 2021, businesses can use the new Union One-Stop Shop (OSS) to comply with their obligations pertaining to EU e-commerce sales to consumers. The Union OSS is an electronic portal which simplifies up to 95% of the VAT obligations for e-commerce sellers.
The portal allows such sellers to: (i) register for VAT electronically in a single EU country for all intra-EU distance sales of goods and for business-to-consumer (B2C) service supplies; (ii) report and pay VAT due on all supplies of services and goods by using a single electronic quarterly return; and (iii) work together with the tax authorities of their EU country of residence in the language of that country, irrespective of whether they are engaged in cross-border sales.
In this article, we will discuss the businesses that are entitled to use the Union OSS (Section 2) and provide guidance on how to register for the Union OSS (Section 3). Afterwards, we will examine the recent changes in the VAT rules pertaining to the Union OSS (Section 4). Next, we will provide a brief summary of the Non-Union OSS (Section 5) which is a special scheme applying to non-EU sellers. Similarly to its Union counterpart, the Non-Union OSS starts operating on the 1st of July 2021. At the end of this article, we provide concluding remarks (Section 6).
Who can benefit from the Union OSS?
The new Union OSS can be used by three categories of users, namely, (i) taxable persons established in the EU, (ii) taxable persons not established in the EU, and (iii) electronic surfaces established in or outside the EU that facilitate supplies of goods.
Taxable persons established in the EU may use the Union OSS in relation to (i) their distance sales of goods within the EU or (ii) for supplies of B2C services which take place in EU countries in which they are not established.
Taxable persons who are not established in the EU can use the Union OSS for distance sales of goods within the territory of the EU.
Electronic surfaces (irrespective of whether or not they are established in the EU) that facilitate supplies of goods can use the Union OSS for (i) certain domestic supplies of goods and (ii) distance sales of goods within the EU.
Guidance on how to register for the Union OSS
Each EU country is required to have its Union OSS as of the 1st of April 2021. The Union OSS can be used for transactions completed on or after that date.
Each EU country will have its own OSS portal allowing businesses (including electronic interfaces) to register. A single registration can be used by e-commerce sellers (including electronic surfaces) for all eligible supplies, irrespective of the location of the consumers.
It should be noted that a supplier who provides intra-Community distance sales of goods and supplies services to various EU countries cannot choose to declare and pay VAT via the Union OSS only on the supplies of services. Such a supplier should declare all his supplies under the OSS.
The changes in the VAT rules pertaining to the Union OSS
Prior to the 1st of July 2021, an EU business based in an EU country selling goods to buyers in another EU country have to register and pay VAT in the buyers’ EU country if the value of the sales to buyers in that other country exceeds a certain threshold ranging between EUR 35,000 and EUR 100,000. As of the 1st of July 2021, the aforementioned rule will be replaced with a new rule which establishes an EU-wide threshold of EUR 10,000. If an e-commerce seller based in one EU country generates more than EUR 10,000 from B2C intra-Community sales, that e-commerce seller will be liable for VAT in the EU countries of the buyers. If the threshold is not reached, the e-commerce seller may apply the rules of the country where it is established.
On the 1st of July 2021, an important rule starts applying to electronic interfaces (platforms and marketplaces) that facilitate distance sales of goods by non-EU sellers to EU buyers. The rule states that such electronic interfaces will be considered to be sellers and will be liable for the payment of VAT. The electronic surfaces will be able to register in a special electronic system.
The importance of the Union OSS will raise significantly after the 1st of July 2021. This is because, as of that date, the VAT exemption of the importation of a small consignment of value up to EUR 22 will no longer apply. Thus, the times when you can import VAT-free products will be gone. The EU claims that the exemption is removed because it: “leads to abusive practices” and “Member States lose part of their tax revenue.” However, the EU promises to simplify measures regarding distance sales of imported goods which do not exceed EUR 150.
The Non-Union OSS
As of the 1st of July 2021, a non-Union scheme can be used by e-commerce sellers who are not established in the EU. All B2C supplies of services made by those sellers that take place in the EU are covered by the non-Union OSS. Exemplary services that can be reported under the non-Union scheme include (i) admission to sport, cultural, scientific, artistic, entertainment, and similar events (e.g., exhibitions and fairs); (ii) accommodation services; (iii) real-estate related services; (iv) transportation services; and (v) supply of catering and restaurant services for consumption on board of trains, ships, and aircrafts.
The new rules which are about to enter on the 1st of July 2021 will affect EU and non-EU based online sellers and marketplaces/platforms operating in the EU e-commerce sector. The changes aim to eliminate the barriers to e-commerce created by the previous VAT rules. To illustrate, before the 1st of July 2021, EU-based e-commerce sellers delivering goods to multiple EU countries have to check whether they meet the distance sale thresholds of individual EU countries and, if they meet some of those thresholds, they have to apply the VAT regime of those particular countries. This puts tremendous administrative burden on EU companies engaged in e-commerce as they have to regularly observe their sales to each individual EU country.
Non-EU companies willing to utilize the full potential of the Union OSS can register a subsidiary company in an EU country and ensure that that company is a taxable person established in the EU. Actually, the registration of such a company can have income tax benefits as some EU countries have low income tax rates. For instance, Bulgaria charges personal and corporate income tax at the rate of just 10%. Thus, if a non-EU company located in a high tax country (e.g., Australia or the United States) registers a subsidiary in Bulgaria and ensures that the subsidiary has economic substance (i.e., it is not merely a shelf company), the Bulgarian company may benefit not only from the Union OSS, but also from the extremely low Bulgarian corporate and personal income taxes.