Tuesday 05 August 2014
A major change in the EU VAT system is less than six months away and it’s going to affect those who sell electronically supplied services to consumers in other member states. The type of business affected include those selling on-line services of games, music, films, TV, radio, software, books, news, advertising, apps and other electronically delivered services.
From 1 January 2015, VAT on all telecommunications, broadcasting and electronic services supplied to consumers in other EU member states will be taxed where the customer is based, rather than as currently where the supplier is located. However, instead of having to register for VAT in various EU countries where their customers are located, suppliers will have the option to make use of a special scheme called the Mini One Stop Shop (MOSS).
This scheme allows suppliers of e-services to only account for the VAT in the EU Member State in which they are established; something which decreases the administrative burden for all businesses involved. It’s expected the new MOSS system will encourage cross border expansion of trade, particularly for start-ups and SMEs.
These changes have been a long time coming (since 2008) and Meridian Global Services has been involved with the legislation development at all stages and influencing the key players at an EU Commission level.
Meridian has produced a decision tree infographic to help you understand the changes and what you need to do
Take a look at the Mini One Stop Shop infographic
Place of taxation
Under current rules for e-services within the EU, VAT is due where the supplier is based, and at the rate set by that Member State. With the standard rate of VAT varying from 3% (Luxembourg) to 27% (Hungary) across the EU, businesses frequently establish in a Member State with a low standard rate, which then applies for the e-services they supply to all private customers throughout Europe. This is against the basic principles of VAT where the taxation should apply where consumption occurs.
The change in VAT rules from January will ensure VAT is charged where the customer is based. This will apply whether it is an EU or non-EU business. So a customer purchasing an e-service in Copenhagen will be charged the Danish VAT rate, regardless of whether the supplier is from Denmark, Luxembourg or the USA.
Mini One Stop Shop
The Mini One Stop Shop should greatly simplify the VAT obligations for companies as they comply with the new rules. Instead of having to declare and pay VAT to each individual Member State where their customers are based, businesses will be able to make a single declaration and payment in their own Member State. Suppliers will use a web portal in their Member State of establishment to account for the VAT due on sales in other Member States. The tax authority in the business' Member State will be responsible for forwarding this information and revenue accordingly. Thus, businesses will have to deal with just one administration (with which they are familiar) rather than up to 28 different ones.