Amending VAT Application Rules for Imported Goods in Distance Selling Transactions

As of 2025, European Union Directive 2025/1539 has entered into force, introducing amendments to the procedure for applying value added tax (VAT) to distance selling transactions involving imported goods. These amendments concern the so-called Import One-Stop Shop (IOSS) regime, which aims to simplify and harmonize VAT administration in cross-border e-commerce transactions.

Before delving into a detailed analysis of the amendments, it is useful to recall the key aspects of the IOSS regime.

IMPORT ONE-STOP SHOP (IOSS)

The Import One-Stop Shop (IOSS) is a system established in the European Union that allows traders—e-commerce businesses—to register in only one EU Member State and submit a single monthly VAT return for all distance (e-commerce) sales of imported goods. This centralized mechanism ensures that VAT is correctly paid to the Member States where the customers (the buyers of these imported goods) are located.

The IOSS system was created to facilitate and simplify VAT declaration and payment for sellers delivering low-value goods (up to EUR 150) to buyers in the European Union.

If a seller is not registered in the IOSS regime, the VAT payment must be made by the buyer. In such cases, at the time the goods enter the European Union, a declaration processing fee charged by a customs broker is usually applied in addition to the tax.

For example, if a product is ordered from the USA, at the moment it arrives at a customs warehouse, the postal or courier service provider (e.g., UPS) usually informs the recipient via email, requesting them to complete a customs declaration and pay the relevant import taxes and duties. The buyer has the option to complete the declaration independently using the Electronic Declaration System (EDS) or to entrust this process to a customs broker, which, however, incurs additional costs. Thus, the obligation to pay VAT primarily rests on the recipient of the goods, i.e., the buyer.

At the European Union level, it has been decided to review and change the existing regulatory framework.

WHAT WILL CHANGE?

The main objective of the amendments is to further encourage the use of the IOSS regime to ensure higher efficiency in VAT collection for imported goods, reduce competition distortions, and simultaneously move towards the implementation of a single VAT registration system across the European Union.

The most significant amendment is the transfer of the VAT payment obligation from the buyer of the goods to the supplier. This means that under the new regulation, in distance selling transactions where goods are imported from third countries or territories and meet the conditions for applying the IOSS regime, the VAT payer will be the supplier of these goods or—in certain cases—the so-called “deemed supplier.”

According to the VAT Directive, in cases where the sale of goods is conducted using an electronic website, platform, portal, or similar mechanism, and distance selling of goods imported from third countries or territories is facilitated in consignments with a value not exceeding EUR 150, such a platform (portal, etc.) is considered the person who has itself received and delivered the said goods.

This means that in the future, platforms, portals, and other electronic marketplaces will be responsible for VAT payment instead of the buyer. If IOSS is not used, the supplier will have to register in each destination Member State, which will create a significant administrative burden and thus encourage joining the IOSS.

If a supplier or deemed supplier is not registered in the EU and does not use IOSS, they will have to appoint a tax representative who will assume all VAT payment and declaration obligations for the relevant imported consignments. An exception applies in cases where a mutual assistance agreement has been concluded between the Member State (including Latvia) and the third country, the scope of which corresponds to Directive 2010/24/EU and Regulation 904/2010.

Member States will be granted the right to determine that persons other than the customer or the primary VAT payer may be held jointly and severally liable for the payment of import VAT. This applies, for example, to indirect customs representatives or other persons responsible for covering the customs debt.

To prevent situations where goods are not released for free circulation due to supplier non-compliance, Member States may be given the option to allow the customer to pay the import VAT instead of the supplier. This provision is intended as a temporary transitional solution and will be evaluated by 2032.

The currently existing “special schemes” that provided for customer liability for VAT payment on low-value imported goods will be excluded from the VAT Directive, as they contradict the new principle of supplier liability.

WHEN WILL THESE RULES ENTER INTO FORCE?

The amendments to the VAT Directive were published on July 25, 2025, and entered into force on August 14, 2025.

Transposition into national laws must take place by June 30, 2028. This does not mean that Member States cannot implement the directive sooner. The directive must be applied from July 1, 2028.

By March 31, 2032, the European Commission must evaluate whether temporary provisions, such as the option for the customer to cover the import VAT themselves, can be maintained.

The aforementioned amendments to the VAT Directive reaffirm the European Union’s commitment to modernizing the VAT system for the needs of the digital age. Platforms and e-commerce stores must begin preparing for the new order in a timely manner—not only by adjusting their marketplaces to correctly collect VAT from buyers but also by registering in the IOSS system or concluding an agreement with a tax representative.