From the 1st of January 2015, the European Union introduced a set of new supply rules for paying VAT in the EU, based on the supply of digital services to European consumers.
Under the new rules, any company trading digital products in any of the 28 EU member states is now required to charge VAT based on the place of purchase, rather than the place of supply.
If your business sells digital products throughout the EU, there are essentially two ways to ensure that you are correctly paying VAT in the EU.
1 – Register for VAT in Each Country
You can individually register for VAT in the countries where you have customers, and apply the country specific VAT rates. However the additional accounting software and administration required to deal with this approach can be both costly and error prone.
2 – MOSS VAT
To avoid registering for VAT in each country, the MOSS (Mini One Stop Shop) VAT scheme allows you to make a single quarterly payment to the HMRC. HMRC will send an electronic copy of the appropriate part of your return, and any payment, on your behalf to the other European tax authorities
MOSS VAT is viewed as the easier and more efficient method of EU VAT payments for digital B2C sales.
What are Digital Services?
- Broadcasting: The supply of television or radio programs.
- Telecommunications: This is fixed and mobile telephone, fax and connection to the Internet.
- e-Services: These include video on demand, downloaded applications (APPS), music downloads, gaming, e books, anti-virus software and online auctions.
This is a fast changing area and the list above is only examples rather than a complete list of Digital Services.
How do you determine the location of the Digital Service?
Paying VAT in the EU requires that you know beyond doubt the locations of your customers. As a business you will need to provide this proof of location to the authorities.
Proof of location can be determined by:
- A telephone box, Wi-Fi hot spot, Internet café, restaurant or hotel lobby. The consumer location will be derived from the place where the service is provided.
- On board travelling between different countries in the EU. The consumer location will be the place of departure for the consumer’s journey.
- Though an individual consumer’s telephone landline. The consumer location will be the place where the landline is located.
- Through a mobile phone. The consumer location will be the country code of the SIM card.
- Through a decoder. The consumer location will be the postal address where the decoder is sent or installed.
VAT MOSS records must be kept for a period of 10 years from 31st December of the year during which the transaction was carried out.
When paying VAT in the EU, you need to raise and issue VAT invoices in accordance with the published requirements of each member state where your consumer is located. However the vast majority of member states do not require VAT invoices to be issued for cross border B2C supplies.
When determining the place of supply for automated services you need to follow a 3-stage process:
- You need to determine whether or not you are supplying a digital service covered by this VAT place of supply of service provisions because if not the place different place of supply rules may apply. When considering this issue it should be noted that e-services is one that is fully automated and involves no or minimal human intervention.
- You should determine the place of supply in accordance with the VAT place of supply rules.
- Only when the place of supply has been determined should you consider whether or not an exemption applies by reference to the legislation of the member state.
VAT MOSS Returns
You are required to submit your VAT Moss return electronically to the member state in which you registered, within 20 days of the end of the calendar quarter return period.
Completing your VAT MOSS return
You will be able to partially complete, save and return to your MOSS return. You are required to include the total supplies for each country at their standard and reduced rates on the VAT MOSS return.
If you are using the non-union scheme in the UK, you will need to declare all B2C digital supplies made to all appropriate member state.
Each successfully submitted VAT Moss return will be issued with a unique reference number. There are no VAT thresholds in the VAT MOSS scheme, so even low value sales must be declared and VAT paid.
Compliance and penalties
The authorities have the legal right to audit your VAT MOSS business records. This could be from either your local jurisdiction or from another European country.
If you would like us to write about any specific topics concerning VAT in the EU, please get in touch with one of our experts who will be happy to help.