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Miguel Carvalho

Some Digital Services Now Taxed According To The EU Customer Location

By Miguel Carvalho 2015-07-01 Economy Comments

To determine the correct EU VAT tax, your business is now required to known the consumer location. Even if you're selling from outside the EU.

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The EU new VAT tax calculation is going to require an extra effort from accounting. Image by Dave Dugdale / CC

From 1st January 2015 some digital goods purchased from inside the EU are to be taxed according to the consumer's country.

In a nutshell, the new VAT rules apply to automated "Electronically Supplied Services". Anything that can be downloadable or serviced online is inside the new VAT rule. The exception to the rule is if the VAT applies to a custom-made product.

This applies even if your business is located outside the EU. Also, there's no minimum threshold for the new VAT rule, it applies even for one single low value transaction.

When exporting digital goods or services to the European Union, your business must know the consumer's local VAT. Meaning, you may need to apply different 28 VATs, corresponding to the 28 different EU countries.

How to Make Sure About the Buyer's Location

To prove the buyer's location you need "two non-contradictory pieces of information". IP address, phone number or location of bank account are some examples of such information. You need to store that information for a 10 year minimum period.

Do I Need to VAT Register With Every EU Country

Luckily not, the EU created the MOSS (Mini-One-Stop-Shop). This a system allows VAT to be collected and distributed for your business.

What Are the Automated "Electronically Supplied Services" (That count for the new VAT rule)

(According to the European Commission Directorate on the Value Added Tax (VAT) "Explanatory notes on the EU VAT changes" published on 3 April 2014)

Electronically automated services including:

  • Web hosting and website supply service
  • Download of software, ebooks, music, video, image, text, documents, films, games, knitting patterns, etc.
  • Software as a Service (S.A.S.), changes to or upgrades of software
  • Remote software or equipment maintenance
  • Online publications (news, magazines)
  • Online advertising space (website advertisement)
  • Radio or television programs distributed via the Internet or similar electronic network
  • Services that provides or supporting a business or personal presence on an electronic network such as a website or a web page
  • Remote systems administration
  • Online supply of on-demand disc space
  • Online automated installation of filters on websites
  • Web site statistics

What Digital Services Remain Excluded From The New VAT Rule

The main rule is about knowing whether the provision of the digital service is customer personalized or not. If it's unique and tailored to a particular client, the new VAT rules don't apply. Such services include tailored web design services, logos, ebook covers or streamed audio or video directly to the customer.

But when you record the live stream so to sell it to your customers, that counts as "Automated Digital Services". In that case, the possibility for mass production exist, so the new VAT rules applies and your customer should pay its local VAT).

The Bottom Line

When digital services are tailored to a specific customer, the seller's location VAT applies. If the digital good is "industrialized", meaning it could be sold to several customers, the buyer's location VAT applies.

This information does not constitute financial advice and should not be taken as such.


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