Going Deeper with VAT Compliance – OSS vs IOSS

Navigating VAT compliance can be daunting, especially for businesses operating across multiple European Union (EU) countries. With the introduction of One-Stop Shop (OSS) a few years ago and, more recently, Import One-Stop Shop (IOSS) systems, businesses now have more streamlined options for managing VAT obligations.  

VAT compliance has posed challenges for businesses due to the complexities of multi-country registration and the impact on cash flow and reporting. The OSS and IOSS systems aim to simplify these processes by centralizing VAT reporting and payment. Understanding the differences between these two frameworks is crucial for choosing the right compliance path and ensuring efficient tax management.  

Understanding VAT Compliance

Value-Added Tax (VAT) is a consumption tax imposed supplies of goods and services at each stage of production and distribution. It’s an essential revenue source for governments, particularly within the EU, and globally more than 90% of countries rely on VAT. VAT applies broadly to most goods and services, can ensure fair taxation and is a stable revenue source; but country specific differences and complex compliance requirements for cross-border transactions make it critical for businesses selling internationally to understand.  

Consequences of Non-Compliance:  

• Penalties: Heavy fines and legal consequences for failing to meet VAT obligations.  
• Operational Disruptions: Delays in shipments, cash flow impacts, blocked sales, or halted business operations.  
• Reputational Damage: Non-compliance can harm a company’s credibility, impacting customer trust, tax authority relationships and future business.  

There are also several challenges of VAT compliance for growing businesses such as navigating multiple tax jurisdictions and ensuring accurate and timely VAT reporting. Selling across borders means registering for VAT in different countries, each with its own rules and thresholds. As your business scales, maintaining consistent, on-time reporting in various jurisdictions becomes more complex, leading to potential errors or missed deadlines.  

What is OSS?  

The One Stop Shop (OSS) system is a VAT compliance system introduced by the European Union to simplify VAT reporting for businesses that sell goods or provide certain services to consumers (B2C) across multiple EU countries. By using OSS, businesses can manage their VAT obligations centrally, eliminating the need to register in each individual EU member state where they make sales.  

OSS is designed specifically for B2C transactions, meaning it covers intra-EU sales of goods and certain digital services, making VAT compliance more manageable for businesses engaged in cross-border e-commerce.  

Benefits of Using OSS  

• Streamlined VAT Registration and Reporting: Instead of registering in every country where sales are made, businesses can register once and file a single quarterly VAT return through OSS.  
• Simplified Compliance for EU-Based Businesses: OSS reduces the administrative burden by centralizing VAT collection, which saves time, effort, and potential errors when complying with different national VAT systems.  

How to Register for OSS  

1. Determine Eligibility: Make sure your business conducts B2C sales within the EU and qualifies for the OSS scheme.  
2. Register on Your Country's Tax Portal: Go to the online tax portal of the EU country where your business is established. Non-EU businesses must register in the EU member state where they begin selling to consumers.  
3. Complete the Online Application: Fill out the required information about your business and VAT registration details.  
4. Receive Confirmation: Once your registration is approved, you'll be able to start using the OSS system for VAT reporting.  
5. File Quarterly Returns: Submit a single VAT return covering all relevant EU sales every quarter, using the OSS portal.  

By registering for OSS, you simplify VAT reporting and ensure smooth, compliant cross-border operations within the EU.  

What is IOSS?

The Import One Stop Shop (IOSS) system is a VAT system designed to simplify the VAT process for businesses that sell low-value goods (below €150) imported into the EU. Its purpose is to streamline VAT collection at the point of sale, ensuring that customers do not face additional VAT charges when their goods are delivered. IOSS helps businesses manage VAT compliance across multiple EU countries by allowing them to register for a single VAT number for all imports.  

Benefits of Using IOSS  

• Simplifies VAT Payment for Low-Value Goods: With IOSS, businesses can collect, declare, and pay VAT on imported goods in a single step, avoiding the need for separate VAT payments in each EU member state.  
• Enhances Customer Experience: By including VAT at the point of sale, customers avoid unexpected costs upon delivery, leading to a smoother transaction process and better overall shopping experience.  

How to Obtain an IOSS Number  

For non-EU businesses, registering for IOSS requires a few key steps:  

1. Appoint an EU Intermediary: Non-EU businesses must work with an intermediary (like a VAT representative) based in the EU to facilitate IOSS registration.  
2. Submit Application Through the Intermediary: The intermediary will handle the submission of your IOSS registration with the relevant EU tax authority.  
3. Receive Your IOSS Number: Once approved, your business will be issued an IOSS number, which you can use for all eligible imports under the €150 threshold.  
4. Use IOSS for VAT Reporting: Begin using your IOSS number for sales of low-value goods to customers in the EU and file monthly VAT returns through the IOSS portal.  

OSS vs. IOSS: Key Differences  

When it comes to VAT compliance for cross-border e-commerce, both the OSS and IOSS systems simplify the process, but they serve different purposes and have distinct requirements. Understanding these key differences is essential for determining which system best fits your business model.  

Scope of Application  

• OSS: The One Stop Shop (OSS) is primarily used for intra-EU B2C sales of goods and services. It applies to businesses selling across EU member states, allowing them to manage VAT obligations centrally without needing to register in every country where they make sales.  
• IOSS: The Import One Stop Shop (IOSS) is designed for non-EU businesses selling low-value goods (under €150) to EU consumers. It simplifies the VAT collection process for imported goods, ensuring that VAT is charged at the point of sale.  

Eligibility and Registration  

• OSS: Any EU-based or non-EU business that sells goods or services directly to consumers within the EU can use OSS. It’s particularly useful for businesses engaging in intra-EU cross-border trade. Businesses must register for OSS in their country of establishment (for EU-based businesses) or in an EU member state of their choice (for non-EU businesses). Registration is done through a single online tax portal.  
• IOSS: Non-EU businesses selling low-value goods to EU consumers are eligible for IOSS. Businesses must ensure their goods meet the value threshold of €150 or less. Non-EU businesses must appoint an intermediary within the EU to register for IOSS. This intermediary handles the registration and VAT reporting process for all eligible imports.  

Reporting and Compliance  

• VAT Reporting Obligations:  
  • OSS: Businesses using OSS file quarterly VAT returns through a central portal. This return covers all intra-EU sales, allowing businesses to consolidate their VAT reporting into one submission.  
  • IOSS: Businesses using IOSS must file monthly VAT returns for goods imported into the EU. This ensures that VAT is accounted for on all low-value goods sold to EU consumers.  
• Impact on Compliance Strategy:  
  • OSS: By using OSS, businesses simplify their VAT compliance across the EU, avoiding the need for separate VAT registrations in multiple countries. This leads to easier reporting and lower administrative costs.  
  • IOSS: IOSS helps non-EU businesses stay compliant with EU VAT laws on low-value imports, ensuring VAT is collected at the point of sale and preventing unexpected VAT costs for customers at the time of delivery.  

Choosing Between OSS and IOSS: Factors to Consider

Deciding whether to use OSS or IOSS depends on various aspects of your business, including its type, location, and the nature of your sales. Here are key factors to help you determine which VAT compliance system suits your business needs:  

Business Type and Location  

• OSS: Ideal for EU-based and non-EU businesses with cross-border B2C sales within the EU. This system is especially beneficial for businesses with a significant volume of sales across multiple EU countries, allowing them to manage VAT centrally.  
• IOSS: Designed specifically for non-EU businesses that ship low-value goods (under €150) to EU customers. If your business is outside the EU and relies on frequent imports to EU customers, IOSS simplifies VAT handling at the point of sale.  

For more about EU VAT reform, read our blog on “EU VAT Reforms: An Unfinished Journey”  

Sales  

• OSS: Best suited for B2C sales of goods and certain services conducted within EU borders. It’s an efficient option if your business model involves selling products or digital services directly to EU consumers without crossing external borders.  
• IOSS: Focused on low-value imports from outside the EU. If your business imports products to EU customers, especially items valued under €150, IOSS enables you to handle VAT directly, preventing VAT surprises for your customers upon delivery.  

Operational Efficiency  

• OSS: Reduces VAT registration requirements and consolidates VAT reporting for intra-EU sales, saving time and resources for EU-based businesses. By using OSS, businesses can streamline compliance by filing a single quarterly VAT return instead of managing separate registrations in each country.  
• IOSS: Simplifies VAT collection for non-EU businesses, enhancing operational efficiency by removing the need for multiple VAT registrations within the EU. IOSS allows you to centralize VAT payments on low-value goods, making compliance smoother and improving the overall customer experience by avoiding unexpected VAT charges at delivery.  

Common Mistakes to Avoid in OSS/IOSS Implementation

Implementing OSS or IOSS can greatly simplify VAT compliance, but certain mishaps can disrupt smooth operation. Below are some common mistakes to avoid when adopting OSS or IOSS to ensure your business remains compliant and efficient.  

Misunderstanding Eligibility Requirements  

• OSS vs. IOSS Eligibility: Many businesses mistakenly assume they can use OSS for all imports or think IOSS applies to all cross-border EU sales. Remember that OSS is for intra-EU B2C sales within the EU for goods and certain services and IOSS is specifically for non-EU businesses selling low-value goods (under €150) imported into the EU.  
• Misinterpreting Thresholds: Ensure that you understand the €150 threshold limit for IOSS, as it only applies to goods with lower value.  
• Assuming All Sales Qualify for OSS: Only eligible B2C transactions within the EU are covered by OSS, not imports or exports beyond EU borders.  

Incorrect VAT Reporting  

• Importance of Accurate Data Entry: Inaccurate VAT data entries can lead to incorrect VAT declarations, which may result in audit issues and potential assessment of interest and penalties.  
• Ensuring timely filings:  
  • Quarterly Returns for OSS: Ensure you are reporting only eligible intra-EU sales and filing quarterly through the OSS portal.  
  • Monthly Returns for IOSS: Verify that only low-value imports are included and file monthly IOSS returns accordingly.  
• Consistent Record-Keeping: Maintain clear and organized records of all cross-border transactions to support accurate VAT reporting. Keep digital copies of invoices and transaction details, as these will be essential for auditing and reconciling VAT submissions.  

Avoiding these common mistakes will help your business leverage OSS and IOSS to their full potential, reducing administrative burden and maintaining compliance.  

Conclusion  

 In navigating the complexities of VAT compliance for cross-border sales, the OSS and IOSS frameworks offer essential tools for businesses looking to streamline their operations within the EU. We discussed:  

• What is OSS and how to register?  
• What is IOSS and how to register?  
• Choosing between IOSS and OSS  
• Common mistakes to avoid in IOSS/OSS implementation  

Choosing the right VAT compliance framework can enhance operational efficiency, reduce compliance errors, and improve the customer experience by avoiding unexpected VAT charges. By understanding the scope, eligibility, and reporting requirements for both OSS and IOSS, you can determine the best path for your business.  

Ready to simplify VAT compliance? Vertex offers comprehensive VAT solutions tailored to your business model. Discover how our VAT compliance framework can support your cross-border e-commerce strategy and keep your business ahead of complex VAT regulations.