How IOSS and TAX works

July 2021 – this is the date where VAT Europe rules are changed. This means that if you are doing business in Europe and dropshipping from China, then you need to be aware of what these new changes mean for your company. In this blog post, we’ll go through what these changes are, how they affect you, and what steps you can take to ensure compliance with the law.

From 1 July 2021 the value-added tax (VAT) exemption for the importation of goods with a value not exceeding EUR 22 are removed. As a result, all goods imported to the EU will be subject to VAT. The Import One-Stop Shop (IOSS) was created to facilitate and simplify the declaration and payment of VAT for distance sales of imported goods with a value not exceeding EUR 150.

What is the Import One-Stop Shop (IOSS)?

The IOSS facilitates the collection, declaration, and payment of VAT for sellers that are making distance sales of imported goods to buyers in the EU. The IOSS also makes the process easier for the buyer, who is only charged at the time of purchase, and therefore does not face any surprise fees when the goods are delivered.

If the seller is not registered in the IOSS, buyers have to pay VAT and additional fees before delivery. The additional logistical complications may lead to delays and provide opportunities for complaints from customers or external entities that can negatively impact your business.

Which supplies of goods does the IOSS cover?

The IOSS covers distance sales of goods that are:

Dispatched or transported from outside of the EU at the time they are sold.

Dispatched or transported in consignments with a value not exceeding EUR 150.

Not subject to excise duties (typically applied to alcohol or tobacco products).

How does the IOSS work?

Sellers registered in the IOSS need to apply VAT when selling goods destined for a buyer in an EU Member State. The VAT rate is the one applicable in the EU Member State where the goods are to be delivered. Information on the VAT rates in the EU is available on both the European Commission website and on the websites of the national tax administration.

How can you register for the IOSS?

You can register your business on the IOSS portal of any EU Member State. If your business is not based in the EU, you will normally need to appoint an EU-established intermediary to fulfill your VAT obligations under IOSS. Your IOSS registration is valid for all distance sales of imported goods made to buyers in the EU.

What to do with IOSS?

If you use IOSS you should do the following:

Show/display the amount of VAT to be paid by the buyer in the EU, at the latest when the ordering process is finalized

Ensure the collection of VAT from the buyer on the supply of all eligible goods that have an EU Member State as their final destination

Make sure that eligible goods are shipped in consignments with a value not exceeding EUR 150; to the extent possible, show on the invoice the price paid by the buyer in EU.

Submit an electronic monthly VAT return via the IOSS portal of the Member State where you are registered for IOSS.

Make a monthly payment of the VAT declared in the VAT return to the Member State where you are registered for IOSS.

Keep records of all eligible IOSS sales for 10 years

Provide the information required for customs clearance in the EU, including the IOSS VAT identification number, to the person declaring the goods at the EU border

Dropast - Taobao Dropshipping VAT

If an order has a Shipping Destination to a European Country you should charge the relevant VAT to your customer with your own IOSS during the checkout.

However, Dropast gives you 2 options:

1. Use your own IOSS: with this option, Dropast will not charge you VAT and we will use your IOSS number for the shipping and customs purposes of your orders. You will be responsible for paying the VAT following the European regulations.

2. Use Dropast's IOSS: with this option, Dropast will charge you VAT based on Dropast product cost (excluded shipping fees). Dropast will be responsible for paying the VAT.

Note: Dropast is not considered as electronic in interface.

Official EU Guidelines: here

Dropast - Taobao Dropshipping TAX

If an order has a Shipping Destination to Canada and the total product cost (excluded shipping fees) is over 15$ then Dropast will charge you TAX (31%). Dropast will be responsible for paying the TAX.