Do you sell electronically supplied services, such as online training, music and film downloads, or software to buyers in the European Union?
On the 1st January 2015, new VAT taxation rules came into play in relation to B2C telecoms and electronically supplied services, such as online training, music, games, applications and film downloads.
If you supply any of the above, the rules change the country of taxation from the country where you, the supplier is established (in the EU), to the country where the customer is located. (Are you in the US? Keep reading.)
Rather than charge your own, local VAT rate, you will have to apply the local VAT rate in any of the 28 European countries where your customer is located.
However, there is also the introduction of the Mini-One-Stop-Shop (MOSS). This provides the vehicle for cross-border eCommerce service providers to be registered in only one European member state and account for the VAT due in other countries through this one registration.
Your local tax authority in the member state where you are registered will collect your total VAT liability and in turn distribute it on your behalf to the relevant EU country tax authorities.
This mirrors the MOSS scheme already in operation for non-EU businesses introduced in 2003 which will mean a level playing field for both EU and non-EU established businesses.
What You Need To Know about VAT MOSS
- Applying Correct Information
VAT rates vary a lot across the EU. Be aware of the different rates and find out if any reduced rates apply to the services you are supplying. Each country also has different criteria for what information should be presented on an invoice – are you applying the right VAT rate and is the correct information on the invoice?
- Capturing the Correct Information?
You will need to make sure you have adequate systems in place to record and report the correct VAT for each country where your customer is located.
Having to account for different VAT rates will affect your profit margins – for example – a product sold in the UK will have 20% VAT on it, whereby the same sale in Hungary will have 27% VAT to account for. If you sell the product for the same price in these countries, your profit will be reduced by 7% in Hungary – something to think about when setting your pricing.
Since 2012, the tax offices are working closely together to help identify non-compliance and fraud amongst online retailers. They will apply penalties for non-compliance – as much as 300% in some cases.
US Online Sellers and VAT MOSS
If you sell digital products and you wish to take advantage of VAT MOSS, you would want to select a country in the EU with no Fiscal Representative costs. We would suggest registering in the Republic of Ireland, due to the potential of the UK coming out of the EU via Brexit.
Once registered for VAT MOSS in Ireland, you could sell your digital products to say, for example, Germany. You would charge your customers local VAT Rate (19% in Germany – as standard). You would then declare your sale (19% VAT) to your German customer on your VAT MOSS return which would be paid to the tax authority in Ireland.
About the Author
Vikram Hans is a part of the Business Development team at SimplyVAT.com. He has extensive knowledge and experience of both the finance and eCommerce industry and is passionate about helping businesses succeed internationally. Vikram knows that each business operates differently and takes the time to understand each unique business to achieve their international goals through VAT knowledge and partner relationships.
If you have any questions with regards to VAT Moss or any other VAT queries, then please do not hesitate to contact firstname.lastname@example.org