Guide to EU VAT
Last updated 24 Jun 2021
Learn about the EU VAT scheme and how it affects your business.
The European Union implemented its own VAT scheme in July 2021.
This guide explains the changes to the EU VAT law, the benefits and drawbacks of the law’s methods of VAT collection, and how online retailers who do not have a location or warehouse in the EU are impacted.
Summary of changes
Effective July 1, 2021
- The €22 EU de minimis no longer exists; all orders are subject to VAT.
- Online retailers may choose between the three optional methods of VAT collection on low-value imports (total of goods is less than or equal to €150) into the EU as outlined below.
Zonos strongly recommends collecting VAT at checkout to avoid transit delays, slowed clearance, and additional fees, which often lead to refused or abandoned packages and a negative customer experience.
To get the fastest transit times, use one of the following methods:
Method 1: Collect VAT at checkout and bill it back to your account through your carrier’s billing options. (See option 1a below.)
- No registration required
- Fast transit
Method 2: Use the IOSS process described below. (See option 2 below.)
- Registration required
- In-country (European) fiscal representation required
- Fastest transit
Table 1: Summary of the EU VAT changes
|Before July 1, 2021||As of July 1, 2021|
|Value of Imported goods||VAT||Customs Duty||VAT||Customs Duty|
|Less than or equal to €22||Exempt from VAT||Exempt from duty||VAT is due!!||Exempt from duty|
|Greater than €22 & less than or equal to €150||VAT due in EU||Exempt from duty||VAT is due||Exempt from duty|
|Greater than €150||VAT due in EU||Duty is due||VAT is due||Duty is due|
EU VAT collection options
Option 1: Business as usual
This regulation does not require you to change how you currently handle your shipments into the EU. Either of the following is still allowed:
Pre-collect applicable VAT and duties from your shopper, then request the carrier to bill back actual VAT and duties to you upon clearance.
You (the online retailer) collect VAT/duties from the consumer at checkout, ship these orders with duties and taxes prepaid (DDP/DTP), and have the duties and taxes billed back to you by your carrier. This method is recommended because it avoids delays in shipping and keeps all costs upfront for consumers, meaning they won’t be surprised by additional fees upon import. To ensure the carrier does not collect VAT from the consumer, clearly identify your shipment as Bill sender/third-party.
Do not collect VAT/Carrier collects VAT
The carrier collects VAT from the consumer. The EU is now calling this method Special Arrangement.
Under Special Arrangement, the carrier collects the VAT from the consumer after import, prior to delivery. The shipment can only be cleared in the EU destination country and will be held until payment of VAT is received from the recipient, causing a significant transit delay and additional carrier fees.
Option 2: IOSS (Import One-Stop Shop)
The online retailer is required to collect VAT at the time of sale as well as register for an EU VAT IOSS number and remit the VAT monthly to the EU country of registration. (See how to register for an EU IOSS VAT number below.) IOSS is recommended if you are shipping a high volume of packages into the EU.
Its aim is to allow packages to clear customs quickly in order to facilitate timely delivery. Another benefit of IOSS is that many of your carrier fees may be waived. However, IOSS may only be beneficial if you ship enough volume into the EU to outweigh the cost of in-country (European) fiscal representation, which is required.
Overview EU VAT collection methods:
- Pre-collect VAT and duties/Bill duties and taxes back to yourself when shipping (Some carriers require IOSS and may not offer this option. Consult your carrier)
- Who collects Vat?
- Online retailer
- When is VAT collected?
- At checkout
- Clearance Speed
- No EU VAT registration or remittance required
- Fast clearance and delivery
- Carrier surcharge fees may apply
- Do not collect VAT/Carrier collects VAT (not recommended)
- Who collects Vat?
- When is VAT collected?
- After import, prior to delivery
- Clearance speed:
- No VAT-related responsibility for the online retailer
- Transit and clearance delays are expected
- Import One-Stop Shop (IOSS)
- Who collects Vat?
- Online retailer
- When is VAT collected?
- At checkout
- Clearance Speed:
- Fastest clearance and delivery
- Carrier surcharge fees (Fees that carriers charge for their duty and tax forwarding services) may be waived.
- VAT registration and monthly remittance to the EU required
- Required fiscal representation in the country of registration at your expense
How to register for an EU IOSS VAT number
If you use the Import One Stop Shop program, it is necessary to register for an IOSS EU VAT number in one EU country, which you may choose. Registering for the IOSS will allow you to consolidate all of your EU VAT monthly filings for each EU country into a single payment in the country where you are registered. When choosing one of the 27 EU countries/member states for IOSS VAT registration, you may want to consider the main language spoken in that country, so you don’t have communication issues down the road. For example, Ireland is a good country to register in for online retailers whose native language is English. If needed, you can change the country at a later date by de-registering in one country and registering in a new country.
EU IOSS VAT number registration steps
- Go to your chosen European country’s Revenue website, eg. Ireland Revenue Online Service (ROS).
- Enter all the details requested (company details, personal details, company’s VAT history, etc.).
- Review your information to ensure accuracy.
- Confirm registration and wait for your VAT number electronically or by mail.
As a non-EU business, it is necessary for an intermediary/fiscal representative (a person or business who is established and taxable in the EU and can register and remit on your behalf) to assist with registration and remittance. Resources for VAT compliance are through your own international tax representative company.
How to calculate and collect VAT on your EU orders under the IOSS EU VAT program
All carts whose total goods are valued at less than or equal to €150 will owe VAT, which is calculated at the VAT rate of the customer’s country (17-25%) on the cart subtotal, shipping, and insurance. (This method of VAT calculation is commonly referred to as CIF (cost of goods, insurance, and freight).
NOTE: Although VAT is charged on the CIF value, the determination of a low-value shipment is based solely on the cost of the goods alone (without any freight, VAT, or other charges added).
- Be aware of the change in de minimis when accounting for the cost of your items, i.e. a product valued at €10 that you once sold into the EU VAT free because it was under the de minimis, is now subject to VAT.
- All B2C sales of goods will be subject to VAT, which is calculated at the VAT rate of the country where the goods are delivered/received. VAT rates differ by country.
Table 2: Example of itemizing VAT charged on a low-value shipment to Germany
Description: Item value of €20 (VAT excluded and freight costs indicated separately)
|Item||Price (cost of goods*)||VAT 20% rate||Total Price w/VAT|
|Computer mouse||€20 low-value||€4||€24|
*The cost of the good is used to determine if an item is of low-value. For example, if a coupon was used, you still use the actual value of the item, pre-coupon. Remember that if it does end up being low-value that VAT is charged on the CIF (cost, insurance, freight) value of the order; in other words, the item value, freight, and insurance combined.
Key points to remember
- All imports entering the EU, regardless of their value, are subject to VAT as of July 1, 2021.
- You do not have to change your VAT collection method. Special Arrangement and IOSS are optional.
- The United Kingdom has left the EU and now has its own VAT scheme.
- If you’re shipping under IOSS, clearly identify your shipment as IOSS to ensure the carrier does not collect VAT from the consumer. To do this, include your IOSS VAT number in the Sender Tax ID field on the commercial invoice.
If I ship my orders into the EU without prepayment of duties and taxes (DDU), do I need to do anything?
You’re not required to change anything if you’re shipping DDU into the EU (See option 1b above); however, it’s recommended to ship with prepayment of duties and taxes (DDP) or use IOSS in order to avoid clearance delays and surprise fees for your consumer.
Do I have to register for an EU IOSS VAT number?
No, if you choose any of the methods in option 1 (outlined in this document), you do not need an EU IOSS VAT number. You only need a VAT number if you choose the IOSS optional method of VAT collection. If you choose the IOSS method, however, you must register for an IOSS VAT number in an EU country through a fiscal representative. The term** fiscal representative** is mentioned above in the above section: EU VAT number registration steps.
Do the VAT collection options only apply to low-value orders?
Yes, only low-value imports (orders valued at or under €150) are subject to the EU’s VAT regulations.
What are the options on orders that are not low-value?
Orders that are not considered low-value (where the value is greater than €150) can use the methods outlined under option 1 in this document.
If someone signs up for IOSS and gets a high-value order, do they collect VAT and send the package on its way?
The online retailer will not remit VAT under IOSS if the package is not of low-value. IOSS only applies to low-value orders. The online retailer can charge and collect VAT on high-value orders at checkout but they do not remit the VAT as part of their monthly IOSS VAT remittance. On high-value orders, one of the methods under option 1 in this guide will apply.
Why did the EU take away the €22 de minimis?
The EU is now collecting VAT on orders of any value to ensure fair competition for European Union online retailers and non-EU online retailers, and combat VAT fraud. Under these regulations, non-EU shipments are taxed at the same amount as intra-EU shipments.
Does the EU VAT law affect duty collection?
No, this law only pertains to VAT collection.
Can Zonos assist me with VAT calculation?
How is the low-value amount defined?
The value of €150 should be based on the cost of the goods, which equates to the price at which the goods are sold, excluding the following: transport and insurance costs; any other taxes and charges.
If I choose to collect and remit VAT under the IOSS program, can I switch to one of the methods in option 1 if I don’t like it?
Once you register for IOSS, you must follow its guidelines (pre-collect VAT, remit VAT, etc.). It is possible to switch to option 1, but this will require canceling your VAT registration. You must also be in good standing (VAT-wise) with the country of VAT registration so that you’re not deregistering while still owing VAT.
If you do not go through the deregistration process in your country of registration and start allowing the carrier to collect VAT while still under IOSS, this is considered noncompliance.
Should I collect VAT while I’m waiting for my EU IOSS VAT number?
Yes! The initial transition period at the beginning of July 1, 2021 will likely have some hiccups and delays. Regardless of when you register for or receive a VAT number from the EU country of registration, your business will be responsible for collecting VAT if you are sending shipments under the EU IOSS program.
Where do I need to include my IOSS number (sales invoice, commercial invoice, shipping label)?
The IOSS number goes on the commercial invoice in the sender's TAX ID field.
Can I include my IOSS number on all my orders even though they are over the €150 threshold?
No. Only use your IOSS number on orders valued at or under €150.
What if I am also shipping via a marketplace?
The marketplace is responsible for VAT collection, remittance, and reporting on any order placed through their system and will need to provide their IOSS number to be included on the commercial invoice.
How often do I report sales, and do I need to do it by country?
You will report monthly and only to the country in which you’ve registered for an EU IOSS VAT number.
Related tax schemes
Other countries with non-resident country tax schemes include the following: