Since 01.07.2021, new sales tax regulations apply with the OSS procedure in the area of e-commerce. Retailers who sell their goods via their own online shop must distinguish three cases. If they sell goods to customers in Germany, everything remains unchanged. So they also charge the respective VAT amounts for their turnover. However, if they sell goods to customers in EU member states, the new OSS procedure requires some special features. If online retailers sell goods worth more than EUR 10,000 annually to other EU countries, they can register for the OSS procedure at the Federal Central Tax Office (BZSt) in Germany. Then they have to calculate the sales tax, which is provided for in the respective country. They report their transactions carried out within the EU to the BZSt one month after the end of the taxation period and transfer the previously withheld VAT there. However, for sales of goods in third countries, the new OSS procedure is excluded.

Since 01.07.2021, new regulations regarding sales taxation apply to online trade. The method that is now used is the one-stop-shop method, which is generally abbreviated to OSS method. The OSS procedure has been established in VAT law for some time, albeit in a completely different context. In the past, the mini-one-stop-shop (MOSS) method was only used for very specific services. Therefore, it is logical that the previous participants in the MOSS method are automatically included in the new OSS method, which now replaces the MOSS method.

The rapid increase in cross-border e-commerce is now accompanied by a reform of sales taxation within the EU. To this end, the European Commission drew up proposals for amendments adopted by the EU Council in 2017. Since 2019, the EU member states have been gradually implementing these innovations within the framework of the so-called VAT digital package. The new OSS procedure was originally supposed to apply as early as 01.01.2021, but there was a delay of six months due to the corona pandemic. Now, however, all EU member states have implemented the corresponding legislative changes to introduce the new OSS procedure, which we would like to report here.

The new OSS procedure aims to ensure that the services provided electronically in the EU lead to VAT in the country where the service takes place in the simplest way possible. Until now, online retailers who delivered goods to a specific country up to a national threshold (delivery threshold) could decide for themselves whether the sales tax is payable in their country or in the country of the recipient. Now, the new OSS procedure is intended to significantly simplify the calculation and payment of VAT in the area of e-commerce and to standardize it within the EU. In this way, the aim is to ensure that the sales tax, which is incurred according to the place of performance principle, actually arrives in those EU Member States in which a service takes place.

The legal framework for implementing the second stage of the VAT digital package at national level is the Annual Tax Act 2020. It concerns in particular §§ 18i, 18j and 18k UStG. Further details are the subject of a separate BMF letter. These three paragraphs each contain three very specific provisions. They therefore also describe three different OSS methods which are very similar in their application. Further changes to the law in this context concern §§ 3, 3a, 3c, 18 and 27 UStG.

Thus, § 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 known as “non-EU regulation”.

§ 18j UStG, on the other hand, is intended for use in intra-Community distance selling, for deliveries in the field of e-commerce within an EU member state and for the provision of other services by an entrepreneur resident in another EU country. Therefore, the designation “EU regulation” for this purpose also fits.

Finally, § 18k UStG contains the special features of the so-called “Import One-Stop-Shop” as a procedure. These are goods imported into the EU for distance sales from third countries with a value of goods not exceeding EUR 150.

Since the changes introduced by the legislator with the new OSS procedure are very extensive, we want to focus in the context of this article on the explanation of the special features that an online retailer based in Germany has to consider when selling his goods via his own online shop. Before we go into the details of our considerations, however, we would like to go into some basic aspects.

For example, the OSS procedure is intended to simplify and standardize the calculation, collection and payment of VAT in the context of e-commerce within the EU. The aim is to achieve this by collecting VAT-bearing services that are incurred in an EU Member State through the online merchants who execute them. 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 taxation applicable there in accordance with the country of destination principle.

In this way, the retention of the sales tax incurred in the recipient country takes place in the member country in which the online retailer conducts his business. For this purpose, a central tax authority should forward the sales tax calculated and retained by online retailers to the financial administration of the respective member state. This central financial authority is the BZSt in Germany. This eliminates the previously necessary tax registration of online merchants in the respective member states for these purposes. In addition, the new OSS method now replaces the transmission of the relevant data by a simplified OSS control declaration.

However, many special features are important. For example, exceptions apply to certain sales (for example, for the delivery of new vehicles). In particular, the role of the delivery threshold, which now amounts to EUR 10,000 across the EU and replaces the previous national delivery thresholds, is important. 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 BZSt for participation in the OSS procedure. Finally, the deadline for submitting the tax return in the OSS procedure and for transferring the foreign sales tax withheld ends one month after the expiry of the assessment period.

As promised, we now come to the presentation of the sales taxation and the OSS procedure of a company based in Germany that distributes goods or services via its online shop. For this purpose, we want to distinguish the three basic cases of sales in Germany, in the EU abroad and in third country territories.

In Germany, the new legislation does not change. As usual, the recipients of the sales taxable services receive invoices showing the sales tax. This applies both to services to other entrepreneurs and to consumers. The company will continue to report the turnover to the tax office via the periodically scheduled VAT advance notification. Of course, the tax office will also receive the correspondingly registered sales tax amounts by transfer. And the previously applicable deadlines for filing the VAT pre-registration and for paying the withheld VAT continue to be adhered to.

4.2.1. OSS procedure for intra-Community transactions with final customers

When providing services to another country within the EU, the new regulations are now applied by the OSS procedure under the “EU regulation”. However, this is an option procedure. Therefore, a registration with the BZSt is first required in order to participate in the OSS procedure. For this purpose, the registration must have been made at the latest on the tenth day of the month at the online portal of the BZSt, which follows the month of service provision. For example, if an online retailer provides a service on 27.11.2021 that meets all the requirements for using the OSS procedure, he must register for participation in the OSS procedure with the BZSt by 10.12.2021. For this purpose, the VAT identification number is required. After registration, the OSS procedure now applies uniformly to all EU member states.

However, certain conditions apply to the OSS procedure. This applies only to services aimed at end customers. In addition, the annual turnover in the EU must be at least EUR 10,000. Likewise, a company may not have a branch, permanent establishment or similar establishment in one of these countries if it wishes to use the OSS procedure for tax registration. In such a case, the tax declaration is made in accordance with the respective national requirements.

When applying the OSS procedure, the performing German company charges the final consumer the VAT prescribed in the respective country of destination. It thus retains the sales tax paid by the final customer. Subsequently, the company reports the turnover to the BZSt via OSS tax return and transfers the previously withheld turnover tax to the Federal Treasury indicated there. In other words, the OSS procedure is basically directly comparable to the VAT advance notification in Germany, only that another EU member state is ultimately the recipient of the VAT.

4.2.2. No OSS procedure if the turnover threshold is not reached

If, however, the total turnover to other EU countries is below the mentioned turnover threshold of EUR 10,000, then the OSS procedure does not apply. In this case, sales taxation is carried out according to the rules of the country in which the online retailer is located. Consequently, he has to register and pay the turnover in his own country – in our example in Germany. For this purpose, the respective national VAT regulations also apply. So you also charge 19% VAT if you sell goods to Poland under these conditions.

4.2.3. No OSS procedure for intra-Community transactions between traders

In the case of recipients of services who are themselves entrepreneurs, up to now invoices without VAT had to be created by providing the respective VAT identification numbers. This now results in the change that from now on you do not have to enter the VAT identification numbers on the invoices. Instead, the entrepreneur based in another EU country who receives the service must declare and pay the sales tax there. This can then refund the previously declared and possibly also paid sales tax as input tax from the tax office of his country. The invoice to the entrepreneur based in another EU country thus remains VAT-free.

For deliveries of goods to a third country (export deliveries), different rules apply. Accordingly, the taxation of the turnover also takes place in the third country. However, instead of handling tax matters through the OSS procedure, companies in the third country must register for tax and apply the corresponding national VAT procedures.

Conversely, online merchants must of course also pay attention to some special features of the OSS procedure if they themselves purchase goods from abroad. For example, if you buy goods from an entrepreneur based in another EU country, you have to declare and pay the sales tax incurred in Germany and usually claim it back as input tax. Of course, this presupposes a right to deduct VAT. As already mentioned, until recently this process was only possible with the sales tax identification numbers of both entrepreneurs. But even under the new provisions in the course of the introduction of the OSS procedure, online merchants can obtain a refund of the sales tax as input tax. This is now done quite regularly via the ongoing VAT advance notification.

The same applies, of course, to the purchase of goods from a third country. Here again, the VAT payable on the delivery is deductible as input tax.