If your business is based outside the EU and you are selling digital services to consumers in Europe, you need to charge VAT for all your European sales and submit VAT returns to the European tax authorities. The VAT rate you need to charge is that of your customer’s location, and VAT rates in the EU vary by country (e.g. 19% in Germany and 21% in Spain).
Sounds complicated, right? In order to make VAT returns easier for you, the EU has introduced a scheme called VAT OSS (One Stop Shop, formerly OSS, Mini One Stop Shop) allowing you to pay all the VAT for your sales in the wider EU through one single return in the EU member state of your choice.
So far, so good. You are happy that there is a centralized system for this, have registered for a VAT OSS in Ireland, and are ready to submit your first VAT return. Trouble is, you are not quite sure how this works. Fear not: We have your back and will walk you through the entire process.
In order to submit a European VAT return in Ireland, you need to be registered for an Irish VAT OSS. We assume you have already completed this step, but if you haven’t yet, you can do this online on the Irish Revenue On-Line Service’s (ROS) VAT OSS website.
Please note that as a business based outside of the EU, you need to register under the Non-Union scheme; the Union scheme applies only to European businesses.
If you’re a non-EU B2B business, please pay close attention! If all of your EU customers are fellow businesses with valid VAT numbers, then you do not need to register for VAT OSS. Every single one of your EU transactions will be covered by the reverse-charge mechanism, which means you don’t need to collect any tax or file any VAT returns.
For a more thorough explanation, check out our post on how the reverse-charge mechanism works.
The tricky thing is to make sure that every customer has a valid VAT number… and, in fact, only a small portion of EU businesses have one. If you can be 100% certain about your customers, then forgo registering for VAT. But if you aren’t sure, or if you plan to expand your customer base across unknown businesses, then you should register for VAT OSS.
Returns For Non-EU Businesses
Businesses under the Non-Union scheme are required to submit quarterly VAT returns. These relate to the calendar quarters starting on January 1st, April 1st, July 1st or October 1st and must be submitted within 20 days of the end of each quarter.
For example, the return for the first quarter of 2021 (January-March 2021) must be submitted by April 20th, 2021.
The returns can be submitted online on the ROS’ website. They can be accessed through ROS My services – Complete a Form – File Return. In order to submit your return, you will need the Digital Certificate issued to your business when you registered for the Irish VAT OSS.
You will need to submit some basic details such as your VAT OSS registration number and the information regarding the VAT you charged for your EU sales during the calendar quarter in question.
ROS pre-populates the basic details for you, so you just need to review them and make sure they are correct.
Next, you need to enter the VAT you charged in each EU member state. A drop-down menu will allow you to select the individual member states and enter your VAT information for each of them.
You need to enter the taxable amount of sales you made in that country and select the correct VAT rate. (The OSS VAT return will be pre-populated with the relevant VAT rates for all member states.)
The OSS system will then calculate the VAT amount due for each member state. Once you have entered the information for each member state where you made sales in this calendar quarter, the OSS system will calculate the total VAT amount you need to pay for all member states.
Let’s have a look at an example:
Say that during the first quarter of 2021 (January-March 2021), you sold digital services to consumers in Spain, Germany, France, and Italy.
You select Spain from the drop-down menu, enter the total amount (this is the base amount, i.e. excluding VAT) of all the sales you made in Spain during this quarter, and select the corresponding VAT rate. The OSS system then calculates the VAT amount you need to pay for your sales in Spain.
You repeat these steps for Germany, France, and Italy, and the OSS system will calculate the total VAT amount you need to pay for your sales in the entire EU during this quarter.
Done! Wasn’t that bad, was it?
Now that you know how much VAT you owe, you need to find out how you can make the payment.
When you submit your Irish OSS VAT return, the following payment options are available for non-EU based businesses:
- single debit instruction
- card payment
- electronic funds transfer
The OSS system will generate a unique reference number for your return, and your payment must be accompanied by this number. Any bank charges on payments under the OSS are always paid by you.
Wait, but…which currency do I apply? What if I made sales in more than one currency?
The OSS VAT return in Ireland must be completed in EURO, irrespective of which currency was applied when making the sale.
If you sold a service in a different currency (e.g. Danish Kroner), you need to apply the official European Central Bank (ECB) exchange rate applicable on the last day of the calendar quarter. These rates are published online on the ECB’s website and are updated daily.
Here is an example: for the first quarter of 2021 (January-March 2021), you need to use the ECB rate for March 31st, 2021.
An OSS VAT return will only allow you to pay the VAT you owe. It will not allow you to claim any VAT refunds you may be eligible for.
This is done via the Electronic VAT Refund system. More information about this is available here.
Congratulations! You now know all about successfully submitting an Irish OSS VAT return. You calculated the correct amount, made the corresponding payment and lived to tell the tale 🙂
As always, please feel free to contact us with any Quaderno questions at email@example.com.