CHARGING VAT ON DIGITAL SERVICES

The two basics questions that should be answered to apply the correct VAT treatments are:

What type of customers are you providing your services to?

B2B and B2C transactions might have different treatments depending the region or countries where you are providing digital services. For example, if your EU company is providing web hosting or streaming music services to another business within the EU, VAT should not be charged and Reverse Charge Mechanism applies. On the contrary if your company is exporting those services out of the EU to another foreign company, then VAT on digital services might apply according to the country of destination tax rules.

For B2C transactions, the customer’s location determines the amount of VAT to be charge according to local VAT rules on Digital Services. For instance, in the EU, VAT MOSS scheme applies for the supply of telecommunications, broadcasting and electronic services (TBE) to customers (non-taxable persons).

Where is your customer located?

There are two general rules for determining the location of your customer:

  1. In case the customer is a business (B2B) it is either the country where it is registered or the country where it has fixed premises receiving the service
  2. When the customer is a consumer (B2C) it is the country where they are registered, have their permanent address or usually live

In order to be able to identify the location of the customer some evidence should be collected, for example:

  • Customer’s bank location
  • Billing address
  • Country where the credit card is issued
  • The location of the customer’s fixed land line through which the service is supplied
  • IP address of the buyer’s choice
  • Country where the SIM card is located (if the purchase is made on a mobile device)

It is important to keep valid invoices records for all digital transactions as well as evidence for the identification of the location of the customer for at least 10 years.

FULFILLING VAT OBLIGATIONS

Each country has its own rules and systems to file VAT returns. Be sure to stay compliant with filing frequency, payments and if required, appoint a Fiscal Representative.

The European Mini One Stop Shop (MOSS)

The Mini One Stop Shop or MOSS came into force on 1 January 2015. It allows taxable persons supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons in Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified. This means you don’t need to register with tax authorities in every EU country you sell to; instead, you can register for VAT, file VAT returns and make payments in one single place. Then the information is securely transferred from the Member State of identification to the relevant Member State of consumption.

Services covered under the MOSS scheme include:

 website hosting
 supply of software
 access to databases
 downloading apps or music
 online gaming
 distance teaching

Digital services affected by the rules

The rules only apply where a business meets all of the following criteria:

  • your customers are charged for e-services services
  • e-services are supplied from the one member state to private consumers in another EU member state
  • your EU customers are not VAT registered businesses
  • you don’t sell your e-services through a third party platform or marketplace (which are responsible for VAT collection themselves)

Possible registration schemes

Two possible registration schemes exist:

  • the Union scheme for taxable persons that have an establishment within the European Union (EU), but are making supplies to Member States in which they are not established
  • the non-Union scheme for taxable persons that have no establishment within the EU