VAT - supplying digital services to EU

UK businesses that provide digital services to private individuals within the EU will have to deal with a major change in VAT rules from 1 January 2015.

The current VAT rules allow businesses supplying these services to private individuals within the EU to pay the usual 20% VAT.  Sellers who are not VAT registered count such sales towards the UK threshold of £81,000 and effectively declare no VAT if they operate under the threshold.

From the 1 January 2015,  businesses supplying broadcasting, telecommunications and digital services to consumers will have to charge customers VAT at the rate of the country where the customer buys the service from.  The applicable VAT rates across the EU range from three percent on e-books in Luxembourg to 27 percent for standard rated supplies in Hungary, which creates other headaches on pricing. 

Either the supplier must register for VAT in each member state, or register for HMRC’s  Mini One Stop Shop (MOSS).  Under MOSS, the supplier reports and pays VAT in the EC member state where it is registered for VAT (e.g. the UK), without registering in each of its EC customers’ member states.

For sellers operating under the UK VAT threshold of £81,000, from 2015, such sellers will still have to pay over the VAT due in other countries on business to consumer sales.  However, in order to use the special simplified system (MOSS) for overseas sales, they must be VAT registered. Therefore businesses will face the choice of either registering for VAT in each EC member state that they sell to or register for VAT in the UK and therefore subjecting all their UK sales to UK VAT.

More information on the GOV.UK website - .  https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop#register-for-vat-moss

https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop