Electronic services subject to new country-specific VAT as of 2015
From 2015, a new regulation will apply to online retailers who sell downloadable products and services in other EU countries. Retailers must pay the VAT due in the EU country in which the buyer is located.
In this guest post, Holger Linneweber from janolaw explains the changes. Our merchants have no need to worry, in the Administration area of the shop, an option for defining individual VAT rates for the different EU countries will be provided in good time. This blog explains exactly how this will work.
What is the background to the new rule?
The new rule is designed to bring about standardised framework conditions in European countries and to ensure fair taxation in e-commerce. This is because many big companies such as Apple and Amazon have benefited from lower levels of taxation by locating their head offices in countries with very low rates of VAT. This reform will end this type of tax shifting. Revenue from sales with private end customers (B2C) will be taxed in the country where the sale is made, i.e. where the customer resides.
What is the directive 2008/8/EC?
The new rule, which comes into force on 1 January 2015, is based on changes to EU directive 2008/8/EC. In future, when sellers and service providers sell their products or services, they will collect and pay over the VAT at the rate that applies in the EU country where the purchaser is based.
For example, if a customer in France decides to purchase image files from a seller in Germany, the seller in Germany must collect and pay over the VAT that applies in France.
Who is affected by the new rule/reporting obligation?
The new rule only affects companies which offer products and services to end customers (B2C) electronically. It does not apply to sales between companies (B2B).
Which products/services are affected?
Only sellers of “non-physical” goods and services are affected, whose offers are also aimed at end consumers in EU countries. This includes:
- Streaming offers
- Download offers
- E-book sales
- Hosting offers
- Online databases
- Fee-based members’ portals
- Sales platforms (service providers)
The shipping of digital goods such as software or e-books on CD or DVD is not affected by the new rule.
How must the new rule be implemented?
The sellers in question can choose between two systems:
- A simplified system called the “Mini One Stop Shop” (MOSS) involving uniform reporting of VAT. This system is designed especially for small companies and saves the need for VAT registration in each individual EU country.Further information can be found here: VAT Guide for Mini One Stop Shop
- Registration in each EU country. In this system, the country-specific sales and the associated VAT in the EU country concerned are collected and paid over directly. This is on condition that the seller registers with the relevant financial authority.In turn, this requires an understanding of the reporting obligations for taxation of the relevant EU countries in which the sales are made. In addition to registration, this includes the rules and deadlines that apply to collecting and paying over the VAT. In the event of failure to comply with the rules, the tax laws of the country concerned apply.
What action needs to be taken?
The operators of an online shop whose offers and target group fall under the new rules must adapt the existing payment systems in their shops to the tax rates in the different EU countries. This means that the different tax rates must be both displayed and calculated. The gross price, i.e. including the applicable VAT, must be displayed to end customers (B2C) in the online shop. Due to this rule, the way that prices are calculated should also be checked. This is because if the same gross prices are used, the profit margin will vary due to different tax rates.
The following page lists the different VAT rates: VAT rates in the member states of the European Union
About the author and janolaw
Banker and business graduate Holger Linneweber works for the legal services provider janolaw AG as the marketing and sales manager, where he is mainly responsible for marketing and partner management. janolaw AG is based in the Rhine-Main area of Germany and since the year 2000 has been one of the top providers of Internet legal services. A growing number of shop owners are successfully using janolaw legal services for their business. Experienced lawyers provide immediate, authoritative answers to your questions about online trading. Long-term, legal security in E-Commerce is provided by the easy-to-use AGB Hosting-Service and the update services for eBay and Amazon. In addition to key documents for Internet shops, janolaw offers a comprehensive portfolio comprising several hundred samples for download on every subject in connection with Internet law. The range of templates is rounded off by the Contract Wizard which can be used to create individual, personalized documents and legal texts for Internet shops.
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Phone: +49(0) 6196/7722-500
Fax: +49(0) 6196/7722-507
Holger Linneweber, janolaw AG
Holger Linneweber, janolaw AG
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