One Market – 28 different VAT Rate Zones
(Plus New Quarterly Returns, 10 Years of Records, 2 Forms of Proof, New Software)
Update 1 Dec 2016 @ webdevlaw.uk:
"It’s happening: the EU has announced #VATMOSS reforms"
28 Nov 2014
… designed to make the operation of the tax as simple as possible and, in particular, to ensure that it is not disruptive or onerous for suppliers of digital services. — EU FAQ (ref)
If you sell certain electronic services (examples, See Note 1), such as digital downloads and eBooks, new EU VAT rules (in the UK, called VAT MOSS – Mini One Stop Shop) come into affect on 1 Jan 2015. For a sole trader, the new rules will be so disruptive and onerous, that many will go out of business.
Before: If you are under the £81K VAT threshold, you do nothing! You do not charge VAT. Easy!
After: No threshold. Even though you are under the £81K VAT threshold, any sales you make to people in the EU (except the UK), will be subject to VAT at their local rate. There is no threshold.
You also need to provide a VAT invoice, and if asked, provide two pieces of non-conflicting evidence to support your tax assessment and prove the place of supply (see note 2), keep these records for 10 years, and provide quarterly reports to HMRC..
VAT charged at 28 different rates
You must now apply the local standard VAT rate in all 28 EU countries where your digital content is sold, taking into account any geographical anomalies and exceptions (there's only a couple of dozen).
Register with HMRC
You must register with HMRC who will manage your EU VAT MOSS obligations (website). You must now submit a VAT declaration electronically each calendar quarter, detailing how many sales were made to each of the 28 EU countries, how much, the amount of VAT charged, and then make payment in GB Pounds.
Shopping cart software
If you use a shopping cart, you need to find one that charges VAT at the point of purchase, and is able to itemise all purchases by country and individual VAT rate. Shopping carts that may help are listed below.
If you use an "open source" (free) shopping cart, the chances that you will get an update to do this, are slim (but see Drupal Commerce below). Your option is to buy a commercial shopping cart (if one was available). If it does become available, you will need to:
- Buy new software (typical cost: £500)
- Install the new software, customise it, migrate over all your data (cost: £500-£5000)
- Learn the software, how to add the Standard VAT rates in 28 EU countries
- Learn how to create quarterly VAT reports
- Repeat for each site you run
No cart: Buy now buttons
If you don't use a shopping cart, but you use NoChex or Paypal payment buttons, then things may be little easier.
Paypal lets you create International Sales Tax rates for individual countries. Details here.
Alternatively, where you had one payment button for each product, you now just have to create a dozen or so for each product, representing each of the different VAT rates you will encounter in the EU. For example:
- Acme VATMOSS eBook
- (20% VAT, or no VAT if under the threshold)
- Acme VATMOSS eBook
- (No VAT in the UK)
- (including VAT @ 8.5% in French Overseas Departments, but not French Guiana)
- (including VAT @ 15% in Luxembourg)
- (including VAT @ 18% in Malta, Portuguese Azores)
- (including VAT @ 19% in Cyprus, Germany, Austria Jungholz and Mittelberg)
- (including VAT @ 20% in Austria, Bulgaria, Estonia, France, Slovakia)
- (including VAT @ 21% in Begium, Czech Republic, Latvia, Lithuania, Netherlands, Spain)
- (including VAT @ 22% in Italy, Slovenia, Portuguese Madeira)
- (including VAT @ 23% in Greece, Ireland, Poland, Portugal)
- (including VAT @ 24% in Finland, Romania)
- (including VAT @ 25% in Croatia, Denmark, Sweden)
- (including VAT @ 27% in Hungary)
- Taxamo compliance solution (Software as a Service)
- VAT Rates Applied in the Member States of the European Union (PDF)
- EU VAT on electronic services
- EU Telecommunications, broadcasting & electronic services
- EU VAT Rates, Formats & Thresholds according to their country codes
- VAT on e-Services
- Register for and use the VAT Mini One Stop Shop
- EU VAT changes: Twitter Q & A
- Policy paper: Revenue and Customs Brief 46 (2014): VAT rule change and the VAT Mini One Stop Shop – additional guidance
- Guidance paper: VAT: businesses supplying digital services to private consumers
- Simplifications for businesses trading below the VAT registration threshold (Jan 2016)
- VAT MOSS Helpsheets @ Institute of Chartered Accountants (More)
- The horrible implications of the EU VAT "Place of Supply" change @ Rachel Andrew
- VAT MOSS: Will I be affected by the EU VAT changes? @ Digital Arts
- New EU VAT rules threaten to kill UK micro firms, The Telegraph, 26 Nov 2014
- New EU VAT regulations could threaten micro-businesses, The Guardian, 25 Nov 2014
Shopping cart software supporting VAT MOSS
- Loaded Commerce 7 (VAT based on shipping address.)
- The Drupal 7 module "Commerce European Union VAT" for Drupal Commerce includes support!
Note 1. Illustrative list of Electronic Services (Ref: Council Directive 002/38/EC, Annex I)
- Website supply, web-hosting, distance maintenance of programmes and equipment.
- Supply of software and updating thereof.
- Supply of images, text and information, and making databases available.
- Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events.
- Supply of distance teaching.
Where the supplier of a service and his customer communicates via electronic mail, this shall not of itself mean that the service performed is an electronic service within the meaning of the last indent of Article 9(2)(e).’
Note 2. HMRC suggest that "you’ll be expected to obtain and to keep in your records 2 pieces of non-contradictory evidence from the following list to support your taxing decisions. Examples include:
- the billing address of the customer
- the Internet Protocol (IP) address of the device used by the customer
- location of the bank
- the country code of SIM card used by the customer
- the location of the customer’s fixed land line through which the service is supplied to him
- other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)"
End quote. Comments:
- Payment processors like Paypal may provide you with a delivery address, but they won't pass on the customer's billing address, and would probably be in breach of data protection laws, if they did.
- An IP address can be an unreliable indicator of location, and may not work if your customer is travelling, using a proxy, or a virtual private network.
- You won't have access to the location of your customer's bank, and even if Paypal collected this, they won't give it to you!
- Does anyone know their SIM country code, where to find it? It also may not work if someone is using a mobile with a dual SIM to get cheaper local calls.
- How many customers no longer have a land line? In other words, this is not workable (See: The End of the Landline?).