IOSS VS. STANDARD IMPORT VAT: WHAT APPLIES TO YOUR ONLINE SALES?

You cannot ignore import VAT if you sell goods online to customers in the EU. Now vendors have two options: the Import One-Stop Shop (IOSS) and the usual process of import VAT. Read on to know which works for your business.

When goods enter the EU

Import VAT is payable whenever goods are imported into the EU. The main question is who is paying for it and when. In e-commerce, this has a direct impact on checkout pricing, customs clearance, and the consumer experience.

IOSS was introduced by the EU to streamline the process of collecting VAT on small-value goods sold online to EU citizens. However, in some cases, standard import VAT applies to the seller.

What Is IOSS?

IOSS is a special VAT scheme that applies to online sales of goods imported into the EU with a value of no more than €150 per consignment. When you are using IOSS, you charge your customer VAT at the point of sale, which is based on the rate of the EU country of the customer.

That VAT is then reported and paid out using a single monthly IOSS return rather than having to deal with the VAT in different countries across the EU. Once the goods enter the EU, import VAT does not apply, and this usually implies quick customs clearance.

This is transparent and smooth on the customer side. They pay upfront VAT, get their order without any unexpected costs, and do not have to wait due to unpaid import taxes.

When IOSS works best

IOSS is well-suited to you if:

· You sell low-priced (under €150) goods.

· You deliver directly to the EU consumers (B2C).

· You wish to sell at VAT-inclusive prices at the checkout.

· You prioritize customer experience and expedited delivery.

Nevertheless, IOSS is not mandatory in global trade. It demands an appropriate system configuration, correct VAT computation by the country of destination, as well as disciplined monthly reporting.

What is Standard Import VAT?

Normal import VAT is applied in situations where:

· The value of the consignment is more than €150.

·                     You do not use IOSS.

· The sale is not an IOSS distance sale.

In this model, the import VAT is levied on the goods after entering the EU. The payment of the VAT can be made by you as the seller, your shipping company, or your customer, depending on the terms of shipping.

Problems tend to crop up here. When the customer is requested to pay import VAT and handling fees on delivery, it may result in refusals, returns, and negative reviews. On your part, you might need to be registered or be a fiscal representative in the country of importation in the EU to reclaim the import VAT.

The final take

IOSS VAT is charged during checkout, while the standard import VAT is charged at the border.

IOSS eases compliance for small-scale B2C sales and enhances the customer experience. On the other hand, standard import VAT is inevitable for higher value goods (above €150) and some business models, but has more administrative and cash-flow implications.

The trick is to synchronize your VAT strategy with your pricing strategy, logistics model, and expectations of the customers.