VAT For Digital Services Providers
If you provide digital services across the European Union there are some important VAT changes coming into force. On 1 January 2015, changes will be made to the European Union (EU) VAT place of supply of services rules involving business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (digital services). Examples range from telephone services, supplies of music, films and games to downloads of apps, images, text or other information. A consumer means a private individual.
How will these changes affect me?
These changes will affect all businesses that supply digital services to consumers, whether or not they are registered for UK VAT. This is because there are no registration limits for digital service supplies made to consumers outside the UK. Any business supplying digital services to a consumer in another Member State therefore has to charge VAT on the supply in that Member State and register for VAT in that Member State (see VAT MOSS below).
If you supply digital services to businesses only (including those who are self-employed) then these changes do not affect you. If you supply digital services to a mix of businesses and consumers, then these changes affect you as far as the supplies to consumers are concerned. If your customer does not provide you with a VAT Registration Number (VRN), and you have no other information that suggests that your customer is in business and VAT registered, you can treat this as a B2C supply.
If you are a business making B2C digital service supplies to EU consumers and are not registered for VAT (because you are under the VAT threshold), you need to take action now as you will need to register for VAT. Under the new rules, you potentially have to register for VAT in every EU Member State where you supply consumers with digital services (see VAT MOSS below).
Who is making the supply?
If you supply consumers through an online store or gateway, and the online store or gateway is acting in its own name, then they will normally be considered to be supplying the consumer. This means that the online store or gateway will be responsible for declaring and paying any VAT due. You will be treated as supplying the store and so will be making a business to business (B2B) supply, rather than a B2C supply. If this is the case, these rule changes do not directly affect you.
Changes to the place of supply of services rules
Currently, the place of taxation for digital services supplies is determined by your location as the supplier of the services. However, from 1 January 2015, the place of taxation will be determined by the location of the consumer.
This is a significant change and in order to work out the country in which VAT due must be paid, you will need to keep additional information that was not required before. You need to start planning for these changes now. To make this as straight forward as possible, the EU Member States discussed and agreed what a business needs to do and the records that it must keep.
Where is the place of supply?
When providing digital services in the circumstances below, you can presume that the location of the consumer, and therefore the place of taxation, is as follows:
- if the service is provided through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided
- if the service is supplied on board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the journey
- if the service is supplied through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located
- if the service is supplied through a mobile phone, the consumer location will be the country code of the SIM card
- if a broadcasting service is supplied through a decoder, the consumer location will be the postal address where the decoder is sent or installed
- To keep the administrative burden on businesses to a minimum, you can apply the above consumer location guidelines without needing to collect and keep any supporting evidence.
If you think that the above bullets do not properly determine where the consumer is located, you can select the correct location. To support your decision, you will need to obtain and keep three pieces of non-contradictory commercial evidence (for example, evidence of the consumer’s billing address, their bank details, their internet protocol (IP) address) to support your view.
If you are providing digital services in circumstances not listed above, you will need to support your decision on the consumer’s location by obtaining and keeping two pieces of non-contradictory commercial evidence.
VAT Mini One Stop Shop (VAT MOSS)
To save you having to register for VAT in every EU Member State where you supply digital services, you may opt to use the VAT Mini One Stop Shop online service (VAT MOSS). This will be available from 1 January 2015, but you will be able to register to use it from October 2014.
This will mean that you do not have to register for VAT separately in each country where you do business.
SMEs supplying digital services (broadcasting, telecommunications and e-services), which are currently not registered for VAT in the UK because they are below the threshold, will have to register for VAT to allow them to use the VAT MOSS online service. If they do not register for VAT in the UK, they will not be able to use VAT MOSS and will have to register for VAT in each Member State in which they have non-business customers.
If you are an EU business, you may register and use the ‘Union’ VAT MOSS online service in the Member State where you have your business establishment (usually the principal place of business or head office). Using the VAT MOSS online service means you can submit a single calendar quarterly VAT MOSS return and payment covering all your EU digital service supplies. For example, if you register for the VAT MOSS online service in the UK, you will be able to account for the VAT due on your B2C digital service sales in any other Member States where you do not have an establishment by submitting a single VAT MOSS return and any related payment to HM Revenue & Customs (HMRC). HMRC will send an electronic copy of the appropriate part of your VAT MOSS return, and the related VAT payment, to each relevant Member State’s tax authority on your behalf. The VAT rate used will be that of each Member State of Consumption at the time the service was supplied.
If you are a non-EU business making B2C digital service supplies to EU customers, and you have a fixed establishment in the EU, you will be able to register and to use the ‘Union’ VAT MOSS online service. You can choose a Member State in which you have a fixed establishment to register.
For More Information
To help the estimated 34,000 or so small-to-medium-sized enterprises (SMEs) affected by the changes, HM Revenue and Customs (HMRC) has released a short YouTube video: http://youtu.be/cZdDIVNaL18
Full guidance is available at: Broadcasting, telecommunications and e-services; rule changes from 1 January 2015