The EU VAT MOSS Guide
You! You, the one running an online business. You, the one selling ebooks, apps, software, games through the Internet. You, the one running a tool under the cool abbreviation of SaaS.
This is a guide made expressly for you, so you can have answers in a quick glance to some of the most frequent questions about the European VAT rules for digital products and services.
Valued-Added Tax (VAT) is a…
VAT (also know as GST in some countries) applies to the market value added to a product or material at each stage of its manufacture or distribution.
Let’s say we bought - as retailers - a pair of shoes for 40 €, and we sold them for 50 €. VAT would apply to the 10 € difference between our buying price and the selling price.
Digital taxes in the EU
If you sell digital products or services to EU consumers, you are absolutely required to:
- Charge VAT based on the location of the customer.
- Register your company for EU VAT.
- Provide detailed invoices showing VAT rate used, amount charged, and requirements of the individual country of the consumer.
- Submit quarterly VAT returns.
The tax rate you must apply depends on where your customer is located (21% in Spain, 20% in France, and so on).
What is affected by these new rules?
The new legislation affects only sales of digital goods to EU consumers.
A digital good is defined by the following criteria:
- It’s a service, not a physical good.
- It’s essentially based on information technology.
- It’s provided via the Internet or an electronic network.
- The supply is fully automated or involves minimal human intervention.
Some examples of digital goods are as follows:
- Downloadable and online games.
- E-books, images, movies, and videos.
- Downloadable and streaming music.
- Cloud computing and software as a service (SaaS).
- Websites, hosting, VoIP, and ISP.
Who is a consumer?
The new VAT rules only apply if you sell to private individuals. The question is: how can I distinguish between businesses (B2B) and final consumers (B2C)? By asking them for their VAT numbers.
As the U.K. tax authorities say…
If you supply digital services and your customer doesn’t provide you with a VAT registration number (VRN) then you should treat the supply as B2C. You, as the supplier, may choose to accept alternative evidence of business status although this may not be acceptable for all member states. If a member state does not accept alternative evidence then you will be responsible for VAT in that country if a VRN has not been provided. It’s your decision to accept alternative evidence. Your customer can’t require you to treat a supply as B2B if they have not provided a valid VRN.”
So you always have to ask your customers for their VAT numbers. If you are not sure if the number provided corresponds to a VRN or it's valid, the European Comission created an online checker for that purpose.
Where is the consumer?
You have to determine the real place of supply, in other to apply the proper VAT rate. You can ask your customers for a billing address, but that’s not enough. They could cheat you to pay less in taxes.
So you have to collect at least two non-contradictory pieces of evidence to proof the location of your customer. These can include the following:
- Billing address of the customer.
- IP address.
- Location of the bank from which the payment was made.
- Country code of the SIM card (if a mobile phone was used during the purchase process).
- The location of the customer’s landline.
- Other commercially relevant information.
And you must keep the evidences you’re using for a period of 10 years from 31 December of the year during which the transaction was carried out.
Where do I have to pay the collected taxes?
The VAT Mini One-Stop Shop (VAT MOSS) is an optional scheme that is being introduced to help suppliers of digital services comply with their obligations to pay VAT all the different member states where they have operated.
Once you register your business in the VAT MOSS entity of your country, you avoid having to manage the VAT return for every EU country where you have sold your digital services.
Businesses outside the EU can choose to register in any country. Some tax authorities will allow you to submit tax filings under MOSS in English, such as Spain and obviously Ireland and the United Kingdom.
Need more information about the new VAT rules? Take a look at our most frequent questions.
Top Questions about EU VAT
What are the EU VAT rates?
VAT rates ranges from 17% to 27%. Here is the full list of EU VAT rates:
Will be my services more expensive in some countries?
Yes, and that’s one of the main concerns for most people with online businesses.
With this VAT rules, a buyer that was paying before around 25,75 € for an ebook that was priced (25€ + 0.3% VAT), from now on he will have to pay 30,25 (25€ + 21% VAT) if the purchase is done from Spain 31,75 (25€ + 27% VAT) if the purchase is done from Hungary, etc.
Every product or service is affected by the new VAT?
The VAT rules for digital goods essentially affects to every service sold online, specially all of those that require almost no human interaction. To be more precise, checkout this list:
- Stuff that can be delivered electronically or via Internet,
- Stuff that is a service, not a physical good,
- Requires minimal human interaction,
- It’s based on / and uses information technology.
Here you are some examples that can provide a clear idea of what kind of products are affected with the new European VAT regulations:
- Any digital products like eBooks, games, software, software as a service, downloads, etc.
- Any kind of streaming digital service of music and downloadable music
- Any website or web applications that offer a service through their site
- Online services that are not necessarily products like web hosting, ISP, online bidding websites, etc.
I sell physical goods, does it affect my business?
Not at all.
Can I be exempted of paying this new VAT?
No limits or a certain threshold have been delimited that allow you to exempt of these taxes.
Can I still operate with my business even if I don’t comply with the new European VAT rules?
Any business that provides e-services to EU customers must comply with the new European VAT directive. If you don’t register for VAT, you may incur a late registration penalty.
My business is not based in the EU, does it affect me the new European VAT directive?
Yes, it does. No matter if your business is located in Australia, USA, Canada, or anywhere else in the world. If your customers are based in an EU country, you will have to comply with this new VAT rules.
My business is based in UK and I'm VAT exempted if I don’t reach a certain limit. Am I affected by new EU VAT regulations?
Yes, you will have to comply with the new VAT rules.
What if I’m selling my products or services through a marketplace?
Selling or providing services through a marketplace can avoid you to worry about VAT if they do it for you. It’s something not all the marketplaces have done, so make sure that yours is doing it or not. Otherwise, you might incur tax fraud.
How do I know if my final client is a business or a consumer?
You will have to ask them for their VAT number. A valid VAT number is the only way of determining if the final customer is a business or an consumer.
If they provide it, you can consider them as a business, and therefore the new EU VAT directive won’t affect these kind of sales.
If they don’t provide this number, you will have to consider them as a consumer and apply them the VAT of the country where they are buying from.
None of your buyers can force you to treat them like a business if he doesn't have a valid VAT number.
What if I have a B2B business?
Under the new VAT rules, B2B sales won’t be affected, but still it will be mandatory to prove if the transactions made have been B2C or B2B.
Regarding location, how do I know where my clients are paying me from?
New EU VAT rules imply that you have to collect at least two non-contradictory evidences of location to determine effectively that your customer is paying from the country he says.
These evidences or proofs of location can be:
- The billing location,
- IP address your users is buying from,
- Country which issued the credit card,
- Location of the bank which the payment was made,
- Country of the SIM card (in case the purchase was done through a mobile device).
Not only you have to collect these evidences, but you will have to bookkeeping them for at least 10 years after the 31st December of the year the purchase was done. For instance, if a purchase was done the 13th of February 2016, you will have to keep all records and evidences of that transaction at least until the 31st of December 2026.
Do I have to keep records of my past sales?
Yes, you do. The new directive is really strict about this, asking you to keep records of:
- Member state of consumption of the supply,
- Type of supply,
- Date of supply and VAT payable,
- Any payments on account,
- Evidences that can determine from where the purchase was made (evidences that can proof the location of your customer)
In what format do I have to keep records of past sales?
These records should be electronically available at the disposal of any EU official institution that might require them. You as merchant will have to attend any kind of requests like this in less than 30 days.
What is Quaderno?
Quaderno helps you to comply with the EU VAT MOSS requirements.
We collect data from your payment processors and checkout forms to collect all the location evidence you need for VAT MOSS and generate the information for EU tax returns in seconds.
All About the VAT MOSS
Do I have to issue VAT return to every country where I have clients?
The Mini One-Stop Shop is a service that has been created for it. By registering in the MOSS of your country, you will avoid to register in every EU state member where you have customers.
Basically, a MOSS works this way:
- You fill out a single VAT return to your MOSS.
- This MOSS will manage and distribute your VAT among other EU state members via their MOSS(es).
- This new procedure saves you time avoiding filling out multiple country-specific VAT returns.
What if I decide to register my business in every EU state on my own?
It’s up to you if you want to benefit of the MOSS service, or if you want to do it on your own. We have listed in this table what might be the pros & cons if you do it in one way or the other one.
|Mini One-Stop Shop (MOSS)||Local VAT registration|
|Less administration||More complexity|
|One quarterly filing applies to the entire EU||Potential for filling up to 28 individual member state returns|
|Shorter filing and payment deadline within 20 days at the end of each quarter||Filing and payment deadlines will depend on each EU state|
|Longer record-keeping requirement||Record-keeping varies depending on EU state|
|Slower input tax recovery||Fast repayments of incurred VAT|
Where I can register for the VAT MOSS?
If you are brave enough, and you prefer to register individually in every EU state member where you have operations, this is the list of all of them.
|Croatia||We didn’t found an official website. Let us know if you know the link|
|Czech Republic||Official Website|
|Finland||We didn’t found an official website. Let us know if you know the link|
|Greece||We didn’t found an official website. Let us know if you know the link|
|Romania||We didn’t found an official website. Let us know if you know the link|
|Slovenia||We didn’t found an official website. Let us know if you know the link|
What happens if I’m established out of EU?
In the case you are a non-EU merchant, you can work with any MOSS in the EU.
When do I have to make my VAT return?
Each calendar quarter, you - as a merchant - are required to electronically submit your VAT return either manually in each one of the states where you had operations, or through your state Mini One Stop Shop.
If you delay filling any of mandatory VAT returns, you will receive several reminders, and ultimately - if the delays continue - it might result in different levels of punishment.
What Official Institutions and European Union have explained about the new VAT
Official information from European Comission where they explain how VAT works, what comes into force with the new rules, etc.
Official information from UK Government where they explain how new rules are going to affect UK businesses selling online.
Official information also from United Kingdom Government where they give information about how the new VAT Mini One Stop Service works.
What newspapers & media outlets have covered about new EU VAT directive
The Guardian newspaper covers the new VAT changes and how many small businesses are going to be affected, since to date many of them could be exempt of paying VAT.
More VAT related coverage from The Guardian giving indications on what small businesses can do to comply with the new laws.
European edition of TechCrunch is conscious about the mess the new changes are creating, specially in UK where the VAT has a notorious big impact in comparation with the previous situation.
The Verge adds another point of view with all the cons that the EU VAT changes are going to imply not only for European audiences, but also for USA based companies.
Novobrief, website covering the latest news in Spain in the startup scene, details what is the new European VAT directive and how can startups deal with it.
Econsultancy, website focused in covering all-related things with ecommerce sums up it's own point of view of what imply the new VAT rules.
USA online edition of Forbes covering ten of the most important things to take in account regarding the new VAT rules and what it implies to USA merchants.
Napkin-graphics to explain clearly & simply what changes with the new VAT and how an European media outlet like TheNextWeb are going to comply with it.
What product makers & bloguers wrote
Rachel Andrew, bootstrapped leader behind the development of Perch, explains in plain English what she has understood about how to comply with the new European VAT directive. Pretty helpful and detailed.
Compilation made by Rachel Andrew too of additional information, tools and resources merchants and online sellers can use to manage the new situation about VAT.
A write-up about the new VAT from a website which is focused in law and business of video games and other forms of interactive entertainment.
A boostrap developer, Jaana Kulmala, explains how the new rules are going to affect to your business in case you are based in the States and you have clients from Europe.
Independent tech blog mainly focused in Nordic and Baltic countries adds its own point of view in the topic.
Collaborative compilation of initiatives, information, resources related with the new EU VAT with the goal of making everyone aware about what problem it can cause.
How some marketplaces have reacted
Etsy latest update on what's is going to be their approach to tackle the new VAT.
eBay gives an explanation of what their users can do to comply with the new European VAT directive.
Amazon explains briefly what's going to happen with all sellers and merchants selling eBooks and other stuff through their marketplace. One of the most buppy cases because in some cases it has implied to increase VAT from 3% up to 20%.
Envato - a marketplace for wordpress themes and scripts - explains briefly what is their approach to comply with VAT.
BandCamp, service of online streaming, explains how they are going to handle the VAT in the purchases other users can do to artists within their platform.
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