The decree of EU (European Union) VAT has undergone a minor change from 1st January, 2015. This has specially affected the digital servicing sales between a seller and a consumer. Let’s go through some important FAQs related to the current decree of EU VAT.
What are the business criteria required for the implementation of the new rule?
The new rule of EU VAT is only applicable if a certain UK business fulfills all these criteria mentioned below:
- The business involvement includes a supply of digital services to different EU associate state from UK.
- It also includes supplying digital services to any private customer who’s in a different EU associate state.
- A charge is levied on the supply of the same service.
Some points to be noted as well are:
- Non-digital services as well as goods traded online do not lie within the scope of the changed rules.
- A business involved in supplying free digital services doesn’t lie within this scope.
There’s a VAT MOSS flowchart capable of informing you whether you’re affected by the current EU VAT decrees or not.
What’s the change?
The change has mainly occurred in the "place of supply" rules for B2C (Business to Consumer) supplies of broadcasting as well as telecommunication services. The seller needs to approach the following issues first:
- The seller needs to determine whether the service provided by him/her is digital or not.
- The seller should ascertain the customer’s status (commercial or non-commercial).
- Verify the "place of supply".
- The seller should also decide whether his/her business provisions are authorized for VAT exemptions or should be taxed at a lower VAT rate.
Let’s get to the change now after the seller has decided on all the four issues mentioned above. The seller has to determine the location of the consumer and charge VAT as per the consumer’s state rates and not on the basis of the seller’s state rates.
Can it be explained with an example?
It can be easily explained with an example. Say for example, ‘A’, a citizen of UK supplies digital services to ‘B’, a citizen of Germany. Then, A cannot charge VAT on the basis of UK VAT rates. The VAT needs to be charged on the basis of Germany VAT rates.
What are these digital services affected by this change?
Some of the best examples of digital services and products that are not provided by the seller in person and are affected by this change are:
- downloadable music
- downloadable software
- training-related video downloads
- webhosting services
The ones that do not lie within this category are the services provided by the seller in person and are unique in nature. For example, if the seller designs the cover of an e-book which is unique in nature and sells it to a customer in person, then that business should not lie within this category. If the seller sells template covers of e-books that can be bought, downloaded and edited by any customer on the internet, then that business lies within this category. This is because the service is not provided in person. You can get a detailed idea of this matter in this document.
What should I do if I sell e-books abroad without VAT registration?
You have the following options if you are involved in such a business. The sellers who are involved in similar businesses can also opt for any one of the following options.
- You can avoid selling your products to other EU states, except UK.
- The sale can also be done through a distributor who would deal with the VAT on your behalf.
- You may opt for VAT registration in UK and in each and every EU country where the products are sold.
- You can opt for VAT registration in UK as well as the VAT MOSS.
What is VAT MOSS?
VAT MOSS is VAT Mini One Stop Shop. It’s a service which allows the sellers to avoid opting for VAT registration in each and every country where the products are sold. You have to remember one key point though. You can register for VAT MOSS only if you have opted for UK VAT registration first. You can get an overview of VAT MOSS through this article. Opting for VAT registration in each and every country might cause the sellers some inconvenience. VAT MOSS can solve that hassle to a certain extent.
What can be done if the turnover’s below the Mandatory Registration Threshold?
There’s no minimum threshold amount for a business that involves the sale of products to other EU states. You must opt for VAT registration if you are involved in selling your products to other EU member states.
So, it can be seen that the best option for businesses in UK involving sale of products to other EU member countries is to opt for VAT MOSS. It does save the sellers from a lot of hassle.