How to ensure you meet your VAT obligations when selling to customers in the EU

What is Value Added Tax?

All goods sold to non-business customers (such as B2C e-commerce transactions) who are resident within the European Union (EU) are subject to VAT. VAT for shipments with a value not exceeding €150, can either be charged by the seller at the time of sale and paid directly to the tax authorities or paid at import before the goods are delivered to the consignee.

How does it impact you and your business?

If you sell goods to consumers within the EU, it is your responsibility to adhere to the necessary VAT obligations. Failure to do so carries considerable risks, including potential financial penalties. With that in mind, you'll understand why it's important to have proper VAT arrangements in place.

What are the options open to you?

There are two ways to manage your VAT commitments:

• Do nothing and leave customers to pay the VAT costs prior to delivery:
  • Customer pays a standard price to you, without VAT
  • Goods are shipped, but held in customs
  • VAT is paid at import before the goods are delivered to the consignee.

• Add VAT at the point of sale, then pass it on to the relevant authorities:
  • Customer pays an all-in price to you, including VAT
  • Goods are shipped and pass through customs smoothly
  • Customer has nothing more to pay

For you, of course, it requires far less effort to leave your customers to settle the VAT bill before they receive their goods. But in an increasingly competitive market, where customer service is all-important, and customer experience is key, that's not a good strategy to build your reputation or increase your sales.

For your customers, it is far more convenient to pay the VAT at the point of sale instead of being surprised with additional costs at the moment of delivery. As well as being simpler and more transparent, it has the added advantage of speeding up the customs process. Before July 2021, this would have involved a considerable administrative burden for you. But since the introduction of an Import One-Stop Shop (IOSS), it's become much easier to manage.

How does the IOSS work?

Registering with the IOSS allows you to submit a single monthly tax return to an EU27 country of your choice, which will then forward VAT settlement and payments to any countries you've sold to. This saves you having to register for VAT in each individual country you sell to, then submitting separate monthly VAT returns and making separate payments to every country. 

IOSS keeps it simple:

• Business scenario

            A small clothing retailer sells T-shirts to customers in 12 EU countries.

• Before signing up to IOSS

            Business has to register for VAT in 12 separate countries, then file 12 separate VAT returns and make 12 separate             payments every month (to each country).

• After signing up to IOSS

            Business files a single VAT settlement and makes a single payment each month, which covers all the 12 EU             countries.

How we can make things even easier

As a logistics company, DHL Express is not in a position to handle the tax registration obligations for you.

If you seek advice and support in those tax procedures, it’s worthwhile to engage with VAT specialists such as PricewaterhouseCoopers** (PwC). 

Specifically, PwC can:

• Get you tax registered or registered specifically for IOSS  

When you subscribe to the service, PwC will ask you to complete a simple digital questionnaire, which they'll then use to sign you up.

• Act as an EU representative for you (if necessary)

If your business is not established in the EU, PwC facilitates that you are duly represented towards EU tax authorities.

• File your monthly returns

Based on details of EU sales provided by you, PwC will prepare and submit the required tax returns and declarations on your behalf.

• Provide you with payment details

PwC will tell you exactly what you need to pay, how you need to pay it, and when you need to pay it by.

• Act as your go-between with the tax offices

PwC will forward all notifications – along with a brief summary – from any tax offices you have dealings with.

• Keep you updated with any regulatory changes

Through regular VAT newsletters and newsflashes, PwC will inform you of any VAT changes that are relevant for your business.

If you need VAT support beyond the above-mentioned scope of IOSS and this particular service, PwC will be more than happy to help. Their VAT expertise extends to everything from rate scanning to litigation and can help you meet all your compliance obligations. 

What are the benefits of working with PwC?

PwC is a world leader in tax advisory services. The firm's global network, international experience, and reputation for quality and integrity mean no-one else is better placed to help you navigate the complexities of VAT. What's more, the service they've created for DHL Express customers is designed to make the whole process of VAT registration and VAT accounting simple and straightforward.

PwC has put together service packages that serve your needs. Their fees are based on the number of packages that you send to recipients in the EU and cover all tasks that are usually required to keep you compliant with VAT requirements in the European Union. The performance of the services by PwC will be subject to a client acceptance procedure and necessary independence approvals and clearance.

IMPORTANT: The contractual relationship is directly between the customer and PwC***.  

Who is eligible for the IOSS scheme?

If you're based outside the EU and sell goods with a value not exceeding €150 to non-business EU customers, you're probably eligible. If you don't have an EU office yourself, you will need an EU-based intermediary – again, this is something PwC can arrange for you.

What VAT rate should be applied to sales?

VAT rates depend on the EU destination country and the types of good being sold. EU law states that the standard rate must be at least 15%, but each country has set its own. Currently, Luxembourg has the lowest rate at 17%, and Hungary the highest at 27%. 

What are the main advantages – for you and your customers?

Once you've registered for the scheme, a single monthly VAT declaration and payment covers all your sales to EU customers. As well as simplifying the process and giving you greater peace of mind, your shipments should clear customs quicker, and your customers won't have the hassle to pick up the goods at a customs office and to make any additional payments when their shipments arrive.

What happens with sales to business customers and those with a value of more than €150?

Transactions with business customers and those with a value of more than €150 currently sit outside the scope of the IOSS. But plans are afoot to include both of these categories in the near future, so hopefully it will soon be possible to report all sales to EU customers in a single VAT declaration. Until then, PwC is best situated to assist you with your tax obligations for those sales.

Next steps

PwC is ready to help your business benefit from the IOSS. Discover how, here.

Alternatively, please email DE_VAT_Compliance@pwc.com