Licence: A Premium Ecommerce licence is required to use this feature and a £190 set up charge applies for advice and template changes. Please contact us to order this.
Terminology: Where 'VAT' is mentioned it means Tax and your site settings may say Tax rather than VAT if you are based in the US for example.
Manual Orders / Amendments: You can add manual orders and amend order lines then re-generate the IOSS values in Order Manager on the individual order (right hand sidebar - see example below). You will need to take care to enter the correct VAT rates and values relating to the customer's member state, including if their address is changed. You might find it easier to cancel the order and have it re-submitted so that the system calculates it for you.
The European Union (EU) is making important changes to its value-added tax (VAT) rules, which come into effect on July 1, 2021. This will impact businesses that sell across EU country borders (also known as distance sellers) and businesses exporting goods to buyers in the EU. Read more on their official website about the VAT changes and IOSS (Import One-Stop Shop) and their 'Everything you need to know' publication. For a list of EU VAT rates check Avalara.
Please note that IOSS is optional not compulsory, you do not have to implement it.
These changes will lead to simpler procedures and reduced administration, as well as greater transparency for EU consumers who will be able to see the VAT charge at point of purchase rather than receiving a demand at point of delivery in their own country.
What are the changes to intra-EU distance sale of goods?
There are three major changes that impact the VAT threshold, the rate applicable for cross-border orders, and tax filing for EU businesses:
- Ending distance selling thresholds rules.
Currently, EU merchants have to register for VAT in other EU countries as soon as they reach a certain country-specific threshold. For example, €100,000 for Germany and €35,000 for France. On July 1, these distance selling thresholds will be withdrawn. Cross-border sellers will be required to charge the VAT rate of the buyer’s country of residence from their first sale, unless the micro-business threshold applies.
- New EU-wide threshold for micro-businesses.
There is a new exemption for micro-businesses established in one EU country with sales no greater than €10,000 in each of the last two years. Merchants who qualify for this exemption can continue to charge the local VAT rate of the EU country where shipment originates for all EU countries they ship to, and continue remitting to their local tax authority.
- One-Stop Shop (OSS) filing.
Merchants can now file a single VAT return known as OSS filing that works for multiple EU countries, which does not require an individual tax registration for each of those countries. Merchants can use OSS to file and remit VAT for any EU country they ship to, provided it is not their home country, or a domestic supply in a country where they have a physical location or hold stock. For these noted countries, merchants should instead continue filing a local return. OSS simplifies the filing process and saves them from the trouble of registering in multiple countries. The merchant needs to submit an electronic quarterly VAT return via their domestic OSS portal and ensure they keep records for all eligible OSS sales for 10 years.
What are the changes for businesses exporting goods to buyers in the EU?
There are two major changes that will impact the VAT threshold and tax filing for non-EU businesses:
- All orders shipped to the EU are now subject to VAT.
Until July 1st, 2021, when buyers in the EU purchase goods shipped from a country outside of that region with a total value below €22, they are exempt from paying VAT. As of July 1st, 2021, buyers will be required to pay VAT on all purchases up to €150. Import VAT and duties will continue to apply on orders above this threshold. Merchants shipping goods to EU buyers from outside of the EU can choose to collect VAT on orders below €150 to simplify the buying and shipping experience for their customers. If merchants choose not to collect VAT on exports to the EU below €150, customers will be charged upon delivery of the goods by the carrier.
- Import One-Stop Shop (IOSS) filing.
Merchants who choose to collect VAT on orders below €150 should use the newly introduced Import OSS (IOSS) to file a single monthly VAT return for all low value exports to the EU. The rest of this article explains how IOSS works within REC+.
How We Handle IOSS on REC+
- EU Consumer?
The system checks the buyer is an EU consumer in two ways:
- they are not in a group that is exempt from VAT
- their delivery address is within a region which has been activated for EU IOSS
- Check products can be purchased by EU Consumers
During checkout the system will check for any products that have been ticked to prevent them being sold to the EU. If any are found a message will appear to advise the buyer the product(s) are not available in their region.
- Products total up to €150?
Their order is checked to see if it has a value up to €150 based on physical products after any coupon/discounts are applied (delivery costs are not included) and if so it falls into the IOSS filing and qualifies for having VAT charged at the rate that applies in the buyer's EU member state.
Note about currency conversion
The currency conversion rate used to calculate the product value in euros is taken from the ECB on an hourly basis. The rate used is stored for auditing purposes.
Note about Zero rated / Exempt products
Zero rated and exempt products are not included in the calculation of the goods total on the basis that no VAT is payable on them.
Note about Product Bundles
Product Bundles set up on the site can only be sold to UK buyers due to the way VAT is calculated for baskets containing mixed VAT rate products. A message will be displayed to non-UK buyers to advise it is not available to purchase outside of the UK.
Note about Lump Sum Coupons
Lump sum coupons are excluded from the €150 threshold limit and VAT calculation, on the basis that they are separate to the intrinsic value of the goods and form a separate line on the invoice. Percentage discounts reduce the value of the products and are therefore taken into account.
- Get the correct EU member state VAT rate
The EU member state VAT rate is looked up from the Delivery Region table, which is either Standard rate or Reduced rate, based on the VAT rating of your product.
Note about selling Reduced rate products
Some member states have more than one reduced rate so you need to check which of these rates applies to your reduced rate products and enter the correct rate against the Delivery Region. Check rates here or refer to your tax advisor.
- Clearly display the EU VAT details being used on orders
Applicable EU VAT is applied to the order and displayed on the order/invoice PDF and in Order Manager, examples shown below. The order/invoice template will require a change to display this.
Illustration: Order Manager
- Reporting & Export
The following reports are available:
Admin > Reports > EU IOSS Reports > Country Summary or Order Line Details
Details about EU IOSS data is also now shown on the orders CSV export directly on each order screen above the items.
Setting Up IOSS On Your Website
- Set up your Delivery Regions
Important: Values and rates have been pre-populated with those valid in June 2021 and therefore need to be checked as they are subject to change and the reduced rates vary from state to state dependent on the products being sold. Avalara publishes EU VAT rates in an easy to read format.
Go into Site Settings > Prices & VAT > VAT/ Rates >tick 'Use region based TAX rates?'
Check your delivery regions are fully set up for EU regions in Delivery Manager > View Delivery Regions for each EU member state, including:
- The correct VAT percentages for Standard and Reduced rates for your products
- The currency is set to EUR with Min=0 and Max=150
- Tick to activate EU IOSS for this region
Tip: Save time Exporting / Importing Regions for checking and amending
You will probably find it easier to review regions by first exporting them via Export Manager > Regions, then changing and re-importing them via Import System > Step 1 > REC CSV file, Step 2 > Regions, Step 3 > Select your amended regions CSV file.
Enable VAT Settings
In Site Settings > Prices & VAT, ensure the following settings are ticked:
Calculate VAT based on the user's region?
Calculate VAT based on the user's group?
Use the VAT exclusive field on the product record to calculate prices?
VAT Rates section
Use region based TAX rates?
Displaying Prices section
Re-download currency rates every hour.
Show the highest VAT rate/percentage at checkout - unticked
Optional setting if you do not use product bundles nor different rates of VAT on products and wish to show the VAT rate. We recommend leaving this unticked.
- Enable EU IOSS Site Setting
Go live with EU IOSS on the site via Site Setting > Prices & VAT > EU IOSS VAT > Enable EU IOSS VAT and putting in your EU IOSS VAT ID/Number
Update the order/invoice template
Update the template to display the new details via the responsive-base template in html/invoice/base.html.twig
- Exclude particular products from being sold to EU Regions
To stop a product being sold to an EU region, on the product record> Main products (towards the bottom of the screen with other exclude flags) tick:
Prevent purchase in EU IOSS regions
If you're using EU IOSS VAT rules then this allows you to prevent selling a product in EU regions
- Put through some test orders
Test the changes are working as expected by putting through some test orders for EU and non-EU consumers and businesses that are within and over the €150 limit.
- Audit data
On the order record you can see the EU IOSS details using the Export function.
Produce a report for EU IOSS orders via Reports> EU IOSS Report