Businesses who supply digital services to overseas customers may be unaware of the potential VAT obligations that exist in countries around the world due to changes in the place of supply of digital services.
What are digital services?
Digital services are services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention.
Such services include: software, website hosting, online newspapers and magazines, e-books, computer games, downloading movies music, mobile and desktop apps and many more.
A full list of digital services can be found here.
Changes in the EU
On 1st January 2015 the EU introduced new rules governing the place of supply of digital services. Under the new rules, Business to Consumer (B2C) supplies of digital services are now subject to VAT in the country where the customer is located. For example, if a UK business supplies online magazines to a non-VAT registered consumer in France, French VAT will be due.
Accounting for VAT overseas
VAT MOSS (Mini One Stop Shop) was introduced to prevent businesses needing to register for VAT in each jurisdiction in which they supply their digital services. VAT MOSS allows businesses to file one return in the UK and make one payment per quarter which covers all EU jurisdictions.
There are two types of VAT MOSS:
- Union VAT MOSS – for businesses established in the EU
- Non-Union VAT MOSS – for businesses established outside the EU. Non EU businesses have been captured by the rules since 2003.
What countries does VAT MOSS cover?
VAT MOSS covers all the Member States of the European Union, a list of which can be found here.
What about non EU countries?
The rules governing the place of supply of digital services are changing across the globe, not just in the EU. For example, on 1st June 2014 South Africa changed their place of supply rules for digital services. Under the new rules the supply of digital services by a foreign business to a resident of South Africa or where payment to the non-established business originates from a South African bank, will result in the need for the business to register for VAT in South Africa. Similar rules also exist in many other countries, for example Iceland, Norway, Switzerland, Belarus. A list of the of the countries which appear to have similar rules can be found here. As these would not be covered by the EU regime (MOSS) a local VAT registration would likely be required.
The rules regarding the place of supply, as well as the registration threshold will vary between countries therefore it is important that you are aware of your customer profile so you can manage your businesses VAT compliance effectively.
Please note that where your supplies are made through an agent/platform, the VAT liability may rest with the agent but please refer to your contract.
What should I do next?
If your business supplies digital services to EU consumers then you should be using VAT MOSS to account for the VAT due in each EU Member State following the changes to the place of supply rules.
If your business supplies digital services to non EU customers (business or consumer) then you need to determine whether you have any VAT registration obligations in these countries. Mitchell Charlesworth’s VAT team is able to analyse your customer profile and determine which countries your business should be VAT registered in, or which countries your business may need to register for VAT in the near future and facilitate your VAT compliance obligations.
If you think that your business may be impacted please contact a member of our VAT team below: