Since July 1st, 2021, new regulations on sales tax have been in force with the OSS procedure in the area of e-commerce. Retailers who sell their goods via their own online shop have to distinguish between three cases. If you sell goods to customers in Germany, everything remains the same. So they also invoice the applicable VAT amounts for their sales. However, if you sell goods to customers in EU member states, the new OSS procedure requires a few special features. If online traders sell goods worth more than EUR 10,000 a year to other EU countries, they can register in Germany with the Federal Central Tax Office ( BZSt) for the OSS procedure. They then have to calculate the sales tax that is provided in the respective country. One month after the end of the tax period, you report your sales made within the EU to the BZSt in a tax return and transfer the previously withheld sales tax there. However, the new OSS procedure is excluded from the sale of goods in third countries.
1. Introduction to the new OSS procedure
Since July 1st, 2021, new regulations regarding sales tax have been in force for online trade. The procedure that is now used is the one-stop-shop procedure, which is generally referred to as the OSS procedure for short. The OSS procedure has been established in sales tax law for some time, albeit in a completely different context. In the past, the mini one-stop-shop procedure (MOSS procedure) was only used for very specific services. It is therefore logical that the previous participants in the MOSS process should also be automatically included in the new OSS process, which is now replacing the MOSS process. The rapid increase in cross-border online trade is now accompanied by a reform of sales tax within the EU. To this end, the European Commission drew up proposals for changes, which the EU Council accepted in 2017. Since 2019, the member states of the EU have been gradually implementing these innovations as part of the so-called VAT digital package. The new OSS procedure was originally supposed to apply from January 1st, 2021, but it was postponed by six months due to the corona pandemic. However, all EU member states have now implemented the relevant changes in the law to introduce the new OSS procedure, which we would like to report here. The aim of the new OSS procedure is that the services provided electronically in the EU lead to sales tax in the country in which the service takes place in the simplest possible way. Until now, online traders who delivered goods to a certain country up to a nationally defined threshold (delivery threshold) could decide for themselves whether the sales tax was due in their country or in the country of the recipient. Now the new OSS procedure should simplify the calculation and payment of sales tax in the area of e-commerce and standardize it within the EU. In this way, one would like to achieve that the sales tax accruing according to the place of performance principle actually arrives in those EU member states in which a service is provided.
2. Legal framework for the new OSS procedure
The legal framework for implementing the second stage of the VAT digital package at the national level is the Annual Tax Act 2020. It particularly affects §§ 18i, 18j, and 18k UStG-the German Value Added Tax Act. The three paragraphs mentioned each contain three very specific regulations. They therefore also describe three different OSS processes that are very similar in their application. Other changes in the law in this context relate to §§ 3, 3a, 3c, 18, and 27 UStG.
2.1. OSS procedure "non-EU regulation"
For example, § 18i UStG includes the regulations on the OSS procedure for other services provided by entrepreneurs based in a third country in the EU. This is also referred to as a "non-EU regulation".
2.2. OSS procedure: "EU regulation"
§ 18j UStG, on the other hand, is intended for use in intra-Community distance sales, for deliveries in the area of e-commerce within an EU member state, and for the provision of other services in Germany by an entrepreneur based in another EU country. Therefore, the term “EU regulation” provided for this also fits.
2.3. OSS procedure: "Import One-Stop-Shop"
Finally, § 18k UStG contains the special features of the so-called “import one-stop shop” as a procedure. This concerns items with a maximum goods value of EUR 150 imported into the EU from third countries for distance sales.
3. Significant changes through the OSS process
Since the changes that the legislature has now introduced with the new OSS procedure are very extensive, we want to focus on the explanation of the special features that an online retailer based in Germany has to consider when selling their goods via their own online shop. However, before we get into the details of our considerations, we would like to go into some basic aspects.
3.1. What is the purpose of the OSS procedure?
The OSS procedure in the "EU regulation" is intended to simplify and standardize the calculation, collection, and payment of sales tax in the context of e-commerce within the EU. The aim is to achieve this by recording services that are subject to VAT and that are incurred in an EU member state via the online dealers who carry them out. They should issue the invoices to their customers in other EU countries in such a way that they comply with the legal requirements for sales tax applicable there in accordance with the country of destination principle.
3.2. This is how the OSS process works
In this way, the VAT incurred in the recipient country is withheld in the member country in which the online retailer conducts its business. To this end, a central tax authority is to forward the sales tax calculated and withheld by online retailers to the tax authorities of the respective member state. In Germany, this central financial authority is the BZSt- Germany's Federal Central Tax Office. This means that the tax registration of online retailers in the respective member states, which was previously necessary for these purposes, is no longer necessary. In addition, the new OSS procedure now replaces the transmission of the relevant data with a simplified OSS tax return.
3.3. Other special features of the OSS procedure
However, there are many special features that are important. Exceptions apply to certain transactions (e.g. for the delivery of new vehicles). In particular, the role of the delivery threshold, which is now EUR 10,000 across the EU and replaces the previous national delivery thresholds, is important here. But the restriction that the OSS procedure is only used for services to consumers is also of great relevance. Even if you meet all the conditions for using the advantageous OSS procedure, you must first apply to the Federal Central Tax Office to participate in the OSS procedure. Finally, the deadline for submitting the tax return in the OSS procedure and for transferring the withheld foreign sales tax ends one month after the end of the assessment period.
Finally, § 18k UStG contains the special features of the so-called “import one-stop shop” as a procedure. This concerns items with a maximum goods value of EUR 150 imported into the EU from third countries for distance sales.
4. The OSS process when selling in your own online shop
There is a differentiation between the three basic cases of sales in Germany, in other EU countries, and in third-country areas.
4.1. Domestic sales
Domestically, there are no changes as a result of the new legal situation. As usual, the recipients of services subject to VAT receive invoices showing the VAT. This applies to services to other entrepreneurs as well as to consumers. The turnover will continue to be reported to the tax office by the company via the periodic advance sales tax return. Of course, the cash register will then also receive the corresponding VAT amounts that have been registered by bank transfer. And the previously applicable deadlines for submitting the sales tax advance return and for paying the withheld sales tax are still being adhered to.
4.2. The OSS procedure for services to other EU countries
4.2.1. OSS procedure for intra-community transactions with end customers
When providing services in another country within the EU, the new regulations through the OSS procedure as part of the “EU regulation” now apply. However, this is an optional procedure.
Therefore, you must first register with the Federal Central Tax Office in order to take part in the OSS procedure. To do this, the registration must be made at the latest on the tenth day of the month on the BZSt's online portal following the month in which the service is provided. If, for example, an online retailer provides a service on November 27th, 2023 that meets all the requirements for using the OSS procedure, then it must register with the BZSt by December 10th, 2023 to participate in the OSS procedure. For this purpose, the VAT identification number is required. After registration, the OSS procedure now applies uniformly to all EU member states.
However, certain prerequisites apply to the OSS procedure. This only applies to services that are aimed at end customers. In addition, the annual turnover in the EU must be at least EUR 10,000. Likewise, a company may not maintain a branch, permanent establishment, or a similar facility in one of these countries if it wants to use the OSS procedure for tax registration. In such a case, the tax return is carried out according to the respective national regulations.
When using the OSS procedure, the German company providing the service invoices the end consumer for the sales tax prescribed in the respective country of destination. It thus retains the sales tax paid by the end customer. The company then reports the turnover to the BZSt using an OSS tax return and transfers the previously withheld sales tax to the federal treasury specified there. In other words, the OSS procedure is basically directly comparable to the sales tax advance return in Germany, only that another EU member state is ultimately the recipient of the sales tax.
4.2.2. No OSS procedure if the turnover falls below the threshold
However, if the sales in other EU countries are below the stated sales threshold of EUR 10,000, then the OSS procedure does not apply. In this case, sales tax is based on the rules of the country in which the online retailer is based. As a result, they have to register and pay the turnover in their own country - in our example in Germany. In addition, the respective national sales tax regulations also apply. So you also calculate 19% sales tax if you sell goods to Poland under these conditions.
4.2.3. No OSS procedure for intra-community transactions between entrepreneurs
In the case of service recipients who are entrepreneurs themselves, it was previously necessary to issue invoices without sales tax by stating the respective sales tax identification number. The change here is that from now on you do not have to state the sales tax identification numbers on the invoices. Instead, the entrepreneur resident in another EU country who receives the service must declare and pay the local sales tax. He can then have the previously declared and possibly also paid sales tax reimbursed as input tax by the tax office of his country. The invoice to the entrepreneur based in another EU country, therefore, remains VAT-free.
4.3. No OSS procedure for sales in third-country areas
In the case of deliveries of goods to a third country (export deliveries), other rules apply. Accordingly, the taxation of the turnover also takes place in the third country. However, instead of handling tax matters via the OSS procedure, companies have to register for tax purposes in the third country and apply the corresponding national VAT procedures.
5. Purchase of goods for your own online shop
Conversely, online retailers naturally also have to take into account some special features of the OSS process if they purchase goods from abroad themselves. If you buy goods from an entrepreneur based in another EU country, you have to declare and pay the sales tax that is due in Germany and usually reclaim it as input tax. Of course, this requires an input tax deduction entitlement. As already mentioned, until recently this process was only possible by providing the VAT identification numbers of both entrepreneurs. But even under the new provisions in the course of the introduction of the OSS procedure, online retailers can obtain a refund of sales tax as input tax. This is now done in a regular manner via the current advance sales tax return.
The same applies, of course, to the purchase of goods from a third country. Here, too, the import sales tax to be paid on the delivery can be deducted as input tax.
