If you sell digital goods or services, especially to European consumers, you are most likely well aware of Value Added Tax (VAT) and the new changes that were put into effect on January 1, 2015. These changes brought new responsibilities for online businesses in terms of understanding the liabilities and charges in each EU state. However, it was recently announced that there are to be more changes to the EU VAT rules for digital services once again. The legislative changes are not expected until 2017 with draft legislation being introduced in 2016. So to stay ahead of your competition and prepare your business for this upcoming change, let’s go over the basics of EU VAT.
Please note: This blog post is for general guidance only and does not contain any legal advice. Please contact an accountant or your local tax authority for more information about the impact of VAT rules on your business.
What is VAT?
According to the EU, “the Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the European Union. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union.”
Until New Year’s Eve of 2014, VAT was based on the location of the business. However, the new VAT rules that were put into effect on January 1, 2015, state that businesses must now charge the VAT based on the customer’s location.
In short, you are affected by the new rules if the following are true:
- You sell downloadable digital goods or services including music, films, games, web hosting services, etc. You can find a list here.
- You sell to customers in EU countries (the rules apply to all sellers providing digital services to customers within the EU, regardless of whether or not you sell from within an EU member state).
And to comply with the new law, you will need to do the following:
- Identify the location of your customer.
- Calculate & charge the correct VAT rates based on the customer location & their local rate.
- Save your customer’s location with two pieces of non-contradictory proof such as a billing address and matching IP address (you’ll need to store the evidence for 10 years).
- Submit quarterly VAT returns to each EU state, or use a MOSS (Mini-One Stop Shop). MOSS enables businesses to declare and pay VAT for each EU member state through their own home country portal rather than registering for VAT locally in each EU member state separately.
If you would like to learn more about the VAT charges, please see this page: http://www.eurovat.com/online.htm
For many businesses it is easiest to use a reliable E-commerce company like BMT Micro to handle international transactions. It is also worth mentioning the difference between an e-commerce provider and a reseller. Some E-commerce providers act as a payment processor only, which means they forward all receipts to the software developers so they are not responsible for accounting for VAT. E-commerce resellers deal with all shopper invoices and accounting issues so customers always receive invoices with the transactions made. If a third-party platform handles the payment, supply and also sets the standard Terms and Conditions (which BMT Micro does), they are responsible for accounting for VAT.
In compliance with this law, BMT Micro is registered with the UK as a non-EU company and pays VAT to the EU on all electronic purchases from customers residing in the European Union. Vendors of BMT Micro are seamlessly prepared to comply with EU regulations, as follows:
- BMT Micro already charges VAT based on customers location via IP address.
- BMT Micro files the VAT tax collected for its vendors.
- BMT Micro keeps vendor VAT documentation for 10 years (which is required by the new law).
- Our non-EU VAT number is: EU826001142
- If you are VAT exempt, entering your complete VAT exemption number on a BMT Micro order form will allow our system to complete the sale without the VAT charge.
As a global e-commerce company, we understand the challenges you face when you sell internationally. We’re dedicated to providing you with the tools you will need to be able to adjust quickly for varying exchange rates and adhere to international taxes, tariffs, and fees. Whether you are a new or established vendor, BMT Micro will handle all the VAT for you, as part of our service. For more information about our services or if you have special needs regarding VAT, including VAT inclusive pricing, please contact our vendor services via email at firstname.lastname@example.org.