2015 EU VAT Changes For E-Commerce Explained
EU VAT and eCommerce
A lot of people have been asking about the new EU VAT changes for electronically supplied goods that is coming into effect on January 1st, 2015. There is always a bit of worry around legislation changes and what it will mean for their business, so we have pulled out all the key points you need to know about the new changes.
First off, if you are selling products that are physically shipped to a customer, then the new changes will not affect you. These changes to the VAT laws only come into effect for online sellers who provide electronically supplied goods(such as online software, ebooks, music, films etc. Think Spotify, Netflix, Xero).
How things work now:
As it stands, for an EU business selling electronically supplied goods, the VAT rate is charged based on the sellers location.
Non EU trading businesses that sell electronically supplied goods charge a VAT rate based on where the consumer is located.
How things will change:
The new legislation coming into effect is specifically designed to make things more consistent for all businesses, whether trading inside or outside the EU. This means that all EU businesses trading electronic services will now start charging a VAT rate based on where the consumer is based.
No changes come into effect for non EU businesses. They will continue charging VAT rates as they always have.
What this might mean for me?
Definition of electronically supplied goods
Unfortunately the actual description given within the legislation around electronically supplied goods can be easily misunderstood and seems to be open to interpretation. You would need to double check with your local tax office as to whether or not your products fall within this remit.
It is important for you to know the absolute location of your customer to ensure correct VAT charges. It can be tricky to get an exact location in some cases where billing addresses don’t match shipping addresses etc. You will need to ensure you have new processes in place to collect this data and ensure you know the exact region of use.
Audits and Penalties
It is anticipated that there will be an increase in audits, which in turn can lead to greater penalties if found to not be in compliance. The rules can be applied very rigidly, and penalties in some EU states can be as much as 300% of the tax
Rules about location of taxation
In order to assist businesses, and help them cut down administrative work around the new regulations, a number of predefined rules can be applied to your service regarding the location of the user:
- if the service is supplied through a mobile phone, the consumer location will be the country code of the SIM card
- 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 through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located
- 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 a broadcasting service is supplied through a decoder, the consumer location will be the postal address where the decoder is sent or installed
VAT Mini One Stop Shop
To further simplify the process, and stop you having to register for VAT in every EU member state in shich you provide your service, you will be able to use the VAT Mini One Stop Shop. This will allow a business to file a VAT return in the EU country in which they are based for the VAT charged in all EU countries.
If you still have questions around the changes and how it may impact your business, it is advised that you discuss it with your tax office or accountant to ensure you are staying compliant. On the bright side, you have plenty time to get yourself prepared.
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