Tax changes for Israelis selling to the EU over the Internet

The general principle is that all supplies to EU residents are now subject to EU VAT, with no de minimis exceptions. The aim is equal VAT for EU and non-EU suppliers. And EU consumers should avoid VAT surprises on imported purchases.

For B2B (business-to-business) supplies by a non-EU supplier, the EU customer already reports the transactions instead of the non-EU supplier, using the “reverse charge” (self-billing) mechanism.

For B2C (business to consumer) supplies by an EU supplier, new “Distance” rules apply to intra-EU transactions.

For B2C transactions by a non-EU supplier, VAT is payable at the rate applying in the destination country of the customer. This can be done by registering for EU VAT purposes in any of the following ways:

(1) registering in the destination country(ies);

(2) registering on the EU-wide One-Stop Shop (OSS);

(3) registering on the EU-wide Import One Stop Shop (IOSS) for goods imported into the VAT valued up to €150; and/or 

(4) letting an electronic interface, i.e. online marketplace collect the EU VAT; or 

(5) not popular – letting the deliverer or local post office collect the EU VAT from the customer.

Detailed rules apply to each possibility. 

Following is an overview mainly from the EU Commission (https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en).

Online sellers, including online marketplaces/platforms can register on the One-Stop Shop (OSS) in one EU Member State and this will be valid for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to customers within the EU.

The OSS may therefore avoid the need for a supplier to register in all 27 EU countries.

Each EU Member State offers an online OSS portal which businesses can use for transactions made on or after July 1, 2021.

What do you need to do if you use the OSS?

Online sellers who are not electronic interfaces must:

• apply the VAT rate of the Member State where the goods are dispatched to or where the services are supplied;

• collect VAT from the buyer on intra-EU distance sales of goods or on supplies of services;

• submit an electronic quarterly VAT return via the OSS portal of the Member State where you are registered for OSS;

• make a quarterly payment of VAT declared in the VAT return to the Member State where you are registered for OSS;

• keep records of all eligible OSS sales it facilitates over 10 years.

This is not the same as the One-Stop Shop (OSS). 

The Import One-Stop Shop (IOSS) allows suppliers and electronic interfaces selling imported goods worth up to EUR 150 to buyers in the EU to declare and pay the VAT to the EU tax authorities, instead of making the buyer pay the VAT to a courier or post office.

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. 

A non-EU supplier of goods can register businesses on the IOSS portal of any EU Member State. If businesses are not based in the EU, they will normally need to appoint an EU-established intermediary.

Special provisions are introduced whereby online marketplaces/platforms facilitating supplies of goods are deemed for VAT purposes to have received and supplied the goods themselves (“deemed supplier”). Accordingly they collect the tax and must keep records.

Many EU countries require fiscal representatives for non-EU established businesses with local EU VAT registrations.

The IOSS and OSS generally won’t apply to sellers holding a goods inventory in one EU country for supply to other EU countries.

In other cases, the IOSS and OSS facilitate VAT registration in just one EU country out of 27.

To sum up, Israeli and other non-EU businesses supplying goods and services to EU consumers must decide how, not whether, to pay EU VAT arising from July 1, 2021.

They may also owe income tax in the EU and elsewhere under existing tax laws and tax treaties or under the upcoming Two-Pillar OECD proposals currently going through a global approval process.

As always, consult experienced tax advisers in each country at an early stage in specific cases.