Selling to European customers from outside the EU can be challenging, especially when dealing with VAT collection and customs clearance. The IOSS (Import One-Stop Shop) number makes this process easier by allowing merchants to collect VAT at checkout and streamline shipping to EU customers. If you run a Shopify store and want to simplify cross-border sales, understanding IOSS is essential.
What Is an IOSS Number?
An IOSS number is a tax identification number that allows non-EU businesses to prepay VAT on low-value goods (under €150) when shipping to customers within the European Union. This system eliminates unexpected customs fees for buyers and speeds up the delivery process.
Before IOSS, many shipments were held at customs, requiring customers to pay VAT before receiving their orders. This often led to delays, unexpected costs, and dissatisfied customers. With an IOSS number, Shopify merchants can collect VAT at checkout and remit it directly to EU tax authorities, making the entire process smoother.
What Does IOSS Stand For?
IOSS stands for Import One-Stop Shop, a system introduced by the EU on July 1, 2021, to simplify VAT compliance for e-commerce businesses selling to EU consumers. Instead of dealing with multiple VAT registrations in different EU countries, merchants can register for IOSS in just one EU member state and handle VAT for all their EU sales from there.
IOSS for Non-EU Merchants
If your Shopify store is based outside the EU but sells to EU customers, IOSS can be a game-changer. It ensures your customers get a seamless shopping experience without unexpected customs charges. Here’s how it benefits non-EU merchants:
- Faster Delivery – Since VAT is prepaid, packages clear customs quickly, reducing shipping delays.
- Improved Customer Experience – Buyers know the full cost upfront, avoiding surprise VAT fees upon delivery.
- Simplified VAT Compliance – Instead of registering for VAT in multiple EU countries, you only need one IOSS registration.
- Competitive Advantage – Customers prefer merchants who offer hassle-free shipping without unexpected charges.
However, it’s important to note that IOSS only applies to shipments valued at €150 or less. If an order exceeds this threshold, VAT and duties must be paid upon arrival in the EU.
How to Register for IOSS
For non-EU Shopify merchants, the IOSS registration process involves a few steps:
- Choose an IOSS Intermediary – If your business is outside the EU, you must register through an EU-based IOSS intermediary. These intermediaries act as your tax representatives, helping you file and remit VAT.
- Register for IOSS in an EU Country – Once you’ve chosen an intermediary, you can register for IOSS in one EU member state. This registration will cover all sales to EU customers.
- Collect VAT at Checkout – Update your Shopify store settings to charge the correct VAT rates at checkout based on the customer's location. Shopify’s built-in tax settings can help automate this process.
- Display Your IOSS Number on Shipments – The IOSS number must be included on shipping labels and invoices so that customs authorities recognize the package as VAT prepaid.
- File Monthly VAT Returns – As part of IOSS compliance, you’ll need to submit VAT reports and payments every month through your registered EU country.
Shopify merchants can integrate IOSS with third-party tax and shipping solutions to automate VAT collection and ensure compliance.
Alternatives to IOSS
If your business is not eligible for IOSS or if you prefer a different approach, there are alternative ways to handle VAT when shipping to the EU. One of the best alternatives is using DDP (Delivered Duty Paid) as a shipping method.
DDP (Delivered Duty Paid) as an Alternative to IOSS
DDP (Delivered Duty Paid) is a shipping method where the seller takes full responsibility for paying VAT and customs duties before delivery. This means the customer receives their order without having to make any additional payments.
How DDP Works:
- The merchant collects VAT at checkout.
- VAT and any applicable customs duties are paid in advance to the shipping carrier or a customs broker.
- The shipment is marked as Delivered Duty Paid (DDP), ensuring that customs recognizes that VAT has already been handled.
- The package clears customs without additional charges to the customer.
Benefits of Using DDP Instead of IOSS
- No €150 Limit – Unlike IOSS, which only applies to orders under €150, DDP can be used for any order value.
- Better Customer Experience – Buyers won’t face surprise customs fees or delays, leading to higher satisfaction and fewer abandoned carts.
- More Flexibility – Some shipping carriers and logistics providers offer DDP as a service, making it easier to handle VAT without registering for IOSS.
- Works for B2B and B2C Sales – IOSS is mainly designed for B2C sales, while DDP can be used for both business-to-consumer and business-to-business transactions.
When to Choose DDP Over IOSS?
- If you sell products over €150, since IOSS does not cover higher-value shipments.
- If you prefer to handle VAT through a logistics provider instead of registering for IOSS.
- If you want a single VAT solution for both low- and high-value orders, avoiding the need to use IOSS for some shipments and DDU (Delivered Duty Unpaid) for others.
Summary
If you’re a Shopify merchant selling to the EU, registering for an IOSS number can simplify your VAT compliance and improve customer satisfaction. However, if your orders exceed €150 or you prefer an alternative, using DDP (Delivered Duty Paid) can be a great way to ensure smooth deliveries and avoid customs issues.
To make cross-border shipping even easier, consider using tools like Packrooster Shipping to automate label creation and ensure your IOSS or DDP shipments are correctly processed. With the right approach, expanding your Shopify store to the EU can be profitable, efficient, and hassle-free.
