Businesses providing digital services or downloadable products throughout the EU will need to take note of these new VAT MOSS changes, which came into effect on January 1st 2015.
As of this year, any company which supplies digital goods in European countries will be charged VAT based upon the place of purchase, instead of the place of supply. For instance, if a UK company sells a downloadable product to a customer in France, they will be subject to the French VAT (TVA), instead of the traditional VAT rates in the UK.
What products and services are covered?
It’s important to reiterate that these changes only cover digital services to consumers; such as downloadable software, e-books, apps, games, music, movies, broadcasts; basically anything sold in a digital format. This means that if you sell only to other businesses, then these VAT changes will not affect you.
With the rise of the digital landscape, more products can be supplied digitally, and so now VAT laws are changing in order to come up to speed with our society. Of course, this means any avoidance of VAT payments is a criminal act which could see business owners face “unlimited” charges, or even arrest in the country in question.
What does my Ecommerce Business need to do to comply with VAT MOSS regulations?
This means that businesses must either register for VAT in each individual EU state, consiting of 28 countries with 75 rates of VAT, or register for VAT in the UK, and register for the new VAT MOSS system from the HMRC. The HMRC has introduced the Mini One Stop Shop (MOSS) to allow registered businesses to account for non-UK VAT in a single return, rather than registering in all the countries in which they sell services.
What is the impact of the VAT MOSS changes?
These new changes ensure that companies gain an equal footing, with a number of high profile multinational companies evading VAT, which has a detrimental impact upon smaller businesses who can’t compete. Amazon are a high profile example, having a subsidiary in Luxembourg to take advantage of the low VAT rates found there.
Despite levelling the playing field as such, many smaller businesses are not happy with the new changes, who do not have the resources at hand to comply with the new regulations. It’s also a big hit for freelancers and creatives who provide online services across Europe. Smaller UK businesses which were exempt from paying VAT if they were selling under £81,000 worth of goods a year, will have to subject to the local VAT of EU countries; which can be detrimental to their business.
Alongside this, it has become necessary for businesses to keep VAT MOSS records for 10 years, from the 31st of December of the year in which the transaction took place.
A big change for these ecommerce websites is that billing systems will need to change so that the right VAT is applied. The HMRC require that businesses must prove the place of purchase with two pieces of evidence, which is extra admin fees for businesses big and small. This would usually involve asking for a customer’s member state and also determining the billing address of the customer; but you could also use the location of their bank, SIM country code, IP address, or land line location.
The new laws mean that all businesses are affected; no matter the size or turnover. However, the HMRC have conceded to allow UK businesses to separate their EU and UK sales, allowing businesses to only pay VAT on UK sales over the threshold of £81,000 gross a year. They have also allowed a transitional period for affected small businesses, giving them until 30 June 2015 to adapt in order to meet the new requirements.
Where are the full details?
You can find the full list of details and requirements here: VAT: businesses supplying digital services to private consumers
For many, this can be a rather complex situation to be landed in, and if you’ve not already made the necessary changes then there’s simply no time to wait around. If you need any more advice, or need to make changes to your site, get in touch with the team here at Xanthos, or call for a quick chat on 08450 740 068.