«The basic EU VAT rules for electronically supplied services explained for micro businesses From 1 January 2015, telecommunications, broadcasting and ...»
The basic EU VAT rules for electronically supplied services explained for
From 1 January 2015, telecommunications, broadcasting and electronically supplied services
are always taxed in the country where the customer belongs1 – regardless of whether the
customer is a business or a consumer. This document aims to give a simple explanation of the
cases that fall under these provisions, especially having in mind electronically supplied
services by micro businesses based in the EU.
This does not concern 1) the supply of goods where use is made of electronic systems only to place the order, and 2) the supply of services other than telecommunications, broadcasting and electronically supplied services.
If any of the explanations in this paper remain unclear, there are references to Explanatory Notes (and any other related documents), which provide the possibility to read about this in more detail. If still in doubt we advise you to contact your local tax administration. (Look at the end of this document on how to find the national contact points.) In order to determine whether the 2015 rules apply to your business you should consider
the following questions:
1. Does the definition of electronically supplied services apply to your business product?
2. Who and where are your customers?
3. How to fulfil your VAT obligations?
1. What are electronically supplied services?
The services are delivered over the Internet or an electronic network
The supply is all of the following:
The business is involved in any of the following essentially automated activities (NB! the list of examples is not involving minimal human exhaustive):
intervention website supply, web-hosting, distance impossible to ensure in the maintenance of programmes and absence of information equipment technology supply of software and its updates See also page 8 supply of images, text and information and making available of databases supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting,
first if the service is explicitly mentioned in one of the examples lists in the VAT Directive2 and the VAT Implementing Regulation3 (see the chart above, and the examples on pages 8, 9 and 10) secondly, if not mentioned among the examples, examine whether the service is mentioned as not being covered by the definition (see pages 8 and 9) finally, if the service cannot be found in any of these lists, verify whether it meets the criteria in the general definition (see the chart above and page 8) When looking at the examples list you must be mindful that the listed activities mainly serve as examples of main types of electronically supplied services known at the time of drafting the legal acts on VAT. Therefore, if you cannot find your service explicitly mentioned, you still have to go through the list which explicitly excludes certain services from being qualified and thereafter also check whether your service would be caught by the general definition.
2. Who and where are your customers?
You are providing electronic services to customers in any other EU Member State
If all of the above statements are true, then your business needs to account for VAT of the other EU Member State. You will find information about fulfilling the VAT obligations in Section 3 of this document.
If at least one of the statements is not true, then the consequences will be different.
If your business has customers only in your Member State you will account for VAT only in your Member State (that is if your business is or has to be registered for VAT).
If you have customers in another Member State, who are VAT registered (i.e. they have provided you with their VAT registration number), then these customers themselves account for VAT in their Member State (reverse charge mechanism).
2 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 3 Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax 2 If your services are provided through a marketplace then it is considered that you are supplying the service to a VAT taxable person (i.e. to the operator of the marketplace) who in turn is supplying the service further to the final customer, to a non-taxable person. The operator of the marketplace will be having VAT obligations in Member States where the final customers are located. See also Explanatory Notes Section 3, pages 22 to 44.
2.1. Determining the location of your customer There are two general rules for determining the location of your customer.
In case the customer is a business (taxable person) it is either the country where it is registered or the country where it has fixed premises receiving the service.
In case the customer is a consumer (non-taxable person) it is the country where they are registered, have their permanent address or usually live.
Real life conditions often make it difficult to have full certainty of the location of a customer.
Therefore some presumptions are allowed by the VAT Implementing Regulation (Articles 24a, 24b, 24d and 24f) to facilitate the application of VAT.
The following is a summary of more in depth explanations from Explanatory Notes Sections 7 to 9, pages 54 to 73.
2.1.1 Presumptions based on the information known about the consumer - apply only to business-to-consumer supplies (B2C).
Where physical presence of the consumer (i.e. a non-taxable person) is not required for receiving that service and you cannot be certain of the country where the consumer is registered, has its permanent address or usually lives, you are allowed to make a presumption based on the information available to you about your customer.
The most commonly used presumption is a general presumption which allows you to identify the location of the customer on the basis of two items on non-contradictory evidence as listed below in section 2.1.3. As a general presumption this is of use when none of the specific presumptions presented below (including the presumptions based on physical location) are not possible to use.
Other B2C presumptions are as follows:
Supply through a fixed land line – when services are supplied to a customer via his fixed land line, the customer is presumed to be actually located there and you will be able to rely on that.
Supply through mobile networks – when services are supplied to a customer via mobile networks, the customer is presumed to be located in the country identified by the mobile country code of the SIM card used to receive the services.
Supply using a decoder – where a decoder or similar device or a viewing card is needed to receive the services, the customer can be presumed to belong where the
2.1.2 Presumptions for the supplies at a physical location of the supplier and on board means of transport – apply to business-to-business (B2B) and business-to-consumer (B2C) supplies.
With the presumption for supplies at a physical location a supplier can assume that the customer is established, has his permanent address or usually resides at the place of the location where the service is being supplied by him and where the customer is present in person because the customer's physical presence is required for receiving that service. That would then be the place where the service supplied by that supplier is taxable. For example it concerns places such as telephone box, telephone kiosk, Wi-Fi hot spot, internet café, restaurant, hotel lobby, but not only.
When the physical location where the services are supplied is on board a ship, an aircraft or a train carrying out passenger transport operation effected within the EU, the country of that location is deemed to be the country of departure of the transport.
2.1.3 Evidence for the identification of the location of the customer There is a non-exhaustive list of evidence to determine the location of a customer in cases where you apply a general presumption (two pieces of non-contradictory evidence) or when you will need/want to rebut a presumption.
The illustrative list of evidence is as follows:
the billing address of the customer;
the Internet Protocol (IP) address of the device used by the customer or any method of geolocation;
bank details such as the location of the bank account used for payment or the billing address of the customer held by that bank;
the Mobile Country Code (MCC) of the International Mobile Subscriber Identity (IMSI) stored on the Subscriber Identity Module (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.
2.1.4 Rebuttal of presumptions
You can choose to rebut a presumption in case you have three items of non-contradictory evidence (as listed above) which prove that the place of supply – the country of location of your customer – is different than deemed under a presumption. You are not obliged to rebut a presumption. Even though there can be evidence to the contrary, you may for determining the place where the customer belongs decide to rely on the presumption applied.
4 A tax authority may only rebut presumptions where there are indications of misuse or abuse by the supplier.
3. Fulfilling VAT obligations If you supply services qualified as electronically supplied services to customers not being VAT taxable persons belonging to different Member States than your own and receiving your service directly from you (not via a marketplace), you need to charge and account for the VAT of these other EU Member States. This implies that you have to charge VAT to these customers at the rate of the Member State to which they belong.
It is important to acknowledge that even if your business is not registered as a VAT taxable person in your own Member State you still have to account for VAT in other Member States where your customers are located.
There are two options to fulfil your obligations:
Register for VAT in each Member State in which your customers are located Register for VAT Mini One Stop Shop (MOSS) in your own Member State only The first option – registering for VAT in other Member States – is not the subject of this paper.
As micro businesses will generally want to avoid registering for VAT in other Member States, the following focusses only on the simplification measure provided by the second option: the VAT MOSS.
The MOSS is a computerised system that allows businesses supplying telecommunications, broadcasting and electronically supplied services to customers in another Member State to account for the VAT due on those services via a web-portal in their own Member State.
If you are already registered for VAT in your Member State you can register for VAT MOSS in addition with the same VAT identification number that you use for your domestic returns.
If you are not registered for VAT in your Member State (e.g. because the domestic threshold for registration is not reached) you can register only for the VAT MOSS.
The sales in your Member State will remain VAT exempted as long as your annual turnover remains below the domestic threshold.
You should submit a quarterly MOSS VAT return electronically to your Member State within 20 days after the end of the return period (e.g. the return for the first quarter of the year must be submitted by the 20th of April).
In this VAT return, you have to declare the total turnover exclusive of VAT, the VAT rates applied and the total amount of VAT charged to your clients per Member State to which supplies have been made.
Deadline for registering to MOSS4 You may know in advance that you will start supplying electronic services to another EU Member State. In this case you will have to inform the tax administration of your Member State that you wish to start using the MOSS scheme. The registration takes effect from the first day of the calendar quarter following that in which you inform your tax administration of your intent.
However, it could be that you have had a customer from another Member State before you have decided to start using the MOSS scheme. In this case you have to inform your Member State by the 10th day of next month that you have made such a supply and then the registration will take effect from the date of that supply.
4. Additional useful information
The European Commission web page for VAT rules on electronic services On the dedicated web page with information about VAT rules for telecommunications, broadcasting and electronic services published by DG TAXUD we would like to draw your attention to the 'Explanatory notes on the EU VAT changes to the place of supply of telecommunications, broadcasting and electronic services that enter into force in 2015' (also referred above, direct link to the English version http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/teleco m/explanatory_notes_2015_en.pdf) and to the 'Guide to the VAT mini One Stop Shop' (direct link to the English version http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/teleco m/one-stop-shop-guidelines_en.pdf).
Both documents have been translated into several languages. Click on the balloon icon next to the PDF icon and the text link on the dedicated web page to access all available language versions.
Sources for specific information about certain Member States VAT rates and invoicing rules 4 See also 'Guide to the VAT mini One Stop Shop', "5) When will the registration take effect" on page 8.
Information about Member States' VAT rates can be found in the TIC database VAT rates section.
Information on which Member States oblige businesses to issue an invoice for business to consumer supplies can be found in the TIC database Invoicing rules section.