EU sales tax reform and OSS: This is what online retailers need to do

Statue „Europa“ vor dem Europäischen Parlament in Brüssel.

Statue “Europe” in front of the European Parliament in Brussels.

Picture Alliance / Daniel Calker | Daniel Calker

  • The biggest sales tax reform in the European Union will take effect on July 1 and presents a number of online retailers with new challenges.
  • With the new delivery limit, many online retailers in other EU countries will be taxed more than ever.
  • Amazon retailers with lower delivery limits may be taxed in other EU countries, as well as having to deal with hundreds of different tax rates.

Online retailers can get a bad sense of fall. The European Union (EU) has been implementing the VAT reform since July 1 to prevent tax evasion and strengthen cooperation between tax offices across the EU. For online sellers, legal reform means that they now have to pay taxes, even for the lowest delivery limits in other EU countries. We talked to online retailers, tax consultants, and a company that developed a business model out of the VAT problem and answered the most important questions about the new regulation.

I sell online. Does the new regulation affect me?

If you run an online shop and your sales to other EU countries exceed a total of യൂറോ 10,000, you will be taxed in all the countries where your goods were delivered. Until now, a higher and nationalized delivery limit has been applied, which the new law has now abolished. This regulation applies to retailers outside the EU, domestic EU customers from domestic EU warehouses, and service providers offering their services to customers in other EU countries.

The new regulation will not affect you if you sell to companies – so the OS will only apply to BSc trading.

Roman Maria Coydel, founder of the Sales Tax Payment Institute, also known as Clearinghouses, has been preparing for years with an automated system for online trading that navigates different tax rates across 27 EU countries and takes tax payments. Its business model is aimed at online retailers selling goods across borders. For these, eClear offers an automated solution that defines different tax rates across the European Union and, if necessary, collects traders’ tax revenue.

Coydel predicts that the legal reform, which will take effect on July 1, will mean significant bureaucratic and administrative additional work for affected businesses and their tax advisers. “Because this limit is lower, more retailers will have to pay sales tax in the future than in other EU countries,” said CEO Coydel.

Help, this worries me! what should I do?

With the new regulation, EU countries are introducing one-stop-shop (OSS) procedures. In principle, OSS makes your job easier. So if you meet the criteria, you should register your company’s sales tax identification number with the Federal Central Tax Office (BZSt) as soon as possible. This is important because in the first quarter after the start of the new procedure, i.e. October 31, 2021, you will be taxed in the EU countries where the goods were delivered. After registering, you must electronically submit your tax return to BZSt every quarter and pay the tax on time. The BZSt and tax consultants who explained the new regulation to us point out that payments must be received on time by the end of this quarter.

Eclair CEO Coydel says there are many merchants, online retailers and tax consultants who still do not know or want to admit that they need to pay attention to the transition to the new system. “The new limit of 10,000 euros makes sales in practically all other EU countries subject to sales tax in the target country,” says Coydel.

Why did the EU first introduce the OSS procedure?

Generally, sales tax is payable in the country of the customer or in the country of delivery of the goods. If you, as a German dealer, send your goods to customers in Poland, you must submit sales tax to the Polish tax office. Until now, online retailers were required to register for sales tax in certain EU countries for certain delivery limits. With OSS, this is no longer necessary, as tax payments in each EU country are regulated by a central office and taxes are distributed across EU countries. In Germany, the federal central office is responsible for taxes. The VAT reform and the OSS procedure are intended to ensure that tax revenue from online trade within the EU is not lost, that retailers do not have to register in each individual EU country, and that EU tax offices can operate more efficiently.

What should I look for when registering for OS?

Tax payment in other EU countries simplifies the OSS procedure, but the tax return is not complicated. Because each EU country has its own tax rate: the standard rate is 19 percent in Germany, 27 percent in Hungary and 21 percent in Belgium. As in this country, every EU country has a tax rate and several exemptions. For example, in Ireland, Malta and the Netherlands there are products with a sales tax of 0%. So if you are sending products to other EU countries, you should be aware of the related sales tax rates. Incorrect tax rates can lead you to pay higher taxes or file incorrect tax returns.

I sell through Amazon. Do I still need to register for the OSS procedure?

Yes. Amazon is not liable if the retailer resides in an EU country. If you participate in the Pan-EU program or the Central Europe program from Amazon and distribute your products in warehouses in other EU countries, you will still have to register for tax in those countries and tax certain transactions locally. .

Are there any exceptions?

Yes. If you sell to companies rather than private consumers, cross-border trade in the EU is still exempt from sales tax. Also, if you are making small or medium sales, the new regulation will not affect you.

What happens if I do not register for OSS?

If you meet the standards and your sales to other EU countries exceed the total of യൂറോ 10,000, you must pay taxes in those countries as well. Registration for the OSS is voluntary and it is important for the trader to fulfill his or her tax obligations. If this does not happen, the trader will have to pay tax arrears in many EU countries and violate tax laws.

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