July 1 saw the new EU Import One Stop Shop (IOSS) scheme for businesses outside the EU selling to consumers inside the bloc come in to effect. This has caught plenty of people on the hop, and we’ve had numerous conversations with our customers about it. Because of Brexit, the UK is now outside the EU but has to comply with the scheme – although it’s worth making the point that if we were still inside the EU, the ‘Union OSS’ scheme for EU-registered businesses would apply instead, and that operates in a very similar fashion (although it only kicks in for businesses doing over 10,000 Euros in cross-border sales per year).
The key point about the IOSS scheme is this:
- If the seller chooses to register for and use IOSS, then VAT of the destination country is charged and collected by the seller at point of sale
- If the seller chooses NOT to register, they do not have to charge VAT – but VAT will be applied upon import by the destination country. This means that the consumer ends up paying more than they expected, their item takes longer to arrive and may incur additional fees as well as the tax owing
Clearly, any business currently selling into the EU needs to make an informed decision whether to continue to do so. The best article we’ve found which explains the changes in detail is from Sage.com: E-commerce VAT in the EU has changed. Here’s what you need to know. There’s also a reasonably plain English summary on the EU’s website here: ALL YOU NEED TO KNOW ABOUT THE IMPORT ONE-STOP SHOP (IOSS).
For any business that decides NOT to continue selling, it’s very quick and easy to configure a WooCommerce site not to permit sales to customers in designated countries. Some of our clients already do this to prevent sales to other parts of the world considered high risk for fraudulent transactions, or for rights reasons, so it’s easy to implement or extend.
If you do decide to continue selling within IOSS:
- WooCommerce will need to have the relevant tax rates for the 27 different countries set up, by enabling tax calculations and adding the rates in. Each country has its own rate, with many having special rates for books (of the EU27, only the Republic of Ireland zero rates books as we do in the UK, but many countries have reduced rates)
- For any shop that also sells non-book items (e.g. toys, merchandise), the ‘regular’ VAT rates would also need to be added – and WooCommerce tax classes would need to be added to products to ensure that the correct rates were applied to the correct products
- WooCommerce will need to be configured to set a maximum order value equivalent to €150 (£130). This would need to be implemented via a plugin, as WooCommerce does not natively support this functionality. A customer who wanted to place an order worth more than this value would need to break it up into multiple consignments; alternatively, WooCommerce would need to know that VAT should only be calculated for orders under the threshold, and to treat orders over the threshold differently – but this would probably require bespoke plugin development
- Vendors will most likely want the website to generate reports for them to assist with compliance (ultimately, as you’re collecting tax that needs to be sent back to the EU, it’s important to have accurate information). We think this plugin will facilitate this, but we have not tested it. We would definitely expect further free and premium plugins to become available over the coming months to assist vendors compliance with the requirements of the scheme
This is by no means a comprehensive guide to the issue, and doesn’t even touch upon requirements for shipping to the EU, customs declarations, etc. We would advise any of our clients planning to sell into the EU via the IOSS scheme to take advice from a tax professional – but hopefully this gives a sense of the implications for website configuration, whether a client is intending to enter the IOSS scheme or suspend sales to the EU altogether.