Going digital during COVID-19

Is going digital during COVID-19 triggering additional VAT obligations?

April 28, 2020 in European VAT, News

How transforming your business to meet these new challenges might cause unexpected VAT liability

Going Digital during COVID-19

When a crisis hits, the only way to thrive is usually to adapt and respond creatively to the challenges. The outbreak of the COVID-19 pandemic is no exception. We have not only seen a boom in ecommerce with traditional brick and mortar businesses turning to online shopping, but also in entrepreneurs offering various services online as an alternative to face to face meetings. However, changing the nature of the services you usually supply may also change the way you need to tax these services. Is going digital to mitigate the impact of COVID-19 on your business creating additional cross-border VAT obligations?  

From yoga classes to training packs, if a service is provided electronically, it may be considered as an online service for VAT purposes, and therefore taxable where the customer is located in the EU.  

In this context, we thought it might be a good time to share with you again the VAT rules for TBE services (Telecommunications, broadcasting, and electronic services) supplied to non-taxable consumers in the European Union. 

Identifying TBE services   

Online services, referred to in the VAT directive as TBE services, are electronically supplied services delivered over the internet with minimal human intervention.  

These services include supply of:   

  • Website
  • Software 
  • Images, text and information  
  • Music, films, games (including gambling), political, cultural, sporting entertainment broadcast and events 
  • Distance teaching

How should you be charging VAT when supplying TBE services?  

Since 2015, TBE services are always taxed in the EU member state where the customer is located, regardless of whether your customer is a business or a private individual.  

However, instead of having to register in all the EU member states where your customers are, a web-portal called the Mini One Stop Shop (usually referred to as MOSS) came into force on 1 January 2015 to enable businesses to remit in a single quarterly return, the VAT due on their total B2C cross-border supplies of online services. The MOSS return is submitted electronically to the member state of identification who will then transfer the data and the corresponding VAT amounts to the other member states of consumption.  

Registering for MOSS 

If you are based in the EU or have a branch there, your member state of identification for MOSS will be the member state in which you are established or have a fixed establishment.  

If you have no branch or fixed establishment within the EU, you can still join the non-Union scheme. You will have to choose a member state of identification and contact the local tax authorities to apply for the scheme available for non-EU businesses.  

As soon as you are registered on MOSS, you must determine and comply with the VAT rates where your customers are located. Additionally, you will have to remain compliant with the filing and accounting obligations of MOSS to avoid being audited or penalised.  

Exemption thresholds  

As of 1 January 2019, the place of supply of online services is the member state where the supplier belongs, rather than where the customer is located, under the following conditions:  

  1. The supplier is established in the EU 
  2. The online services are supplied to private individuals
  3. The supplies have not exceeded EUR 10,000 (without VAT) in the current and preceding calendar year.

So, if the above-mentioned conditions are met, as a business you don’t need to register for MOSS and charge the VAT rates applicable in your customer’s country of residence. However, you can still voluntarily opt for registering on MOSS and if you decide to do so, you would be bound to this decision for two calendar years.  This might be interesting if you want to avoid having to continuously monitor the threshold.  

What do you need to keep in mind?  

Going digital in these times of uncertainty not only shows a certain level of resilience but can also help you nurture the relationship you have with your clients, whatever industry you are in. However, changing the way you supply services may change the way you need to tax them. If your supplies qualify as online services for VAT purposes, then maybe you need to consider if MOSS is a good option for you.  

The Mini One Stop Shop is a great simplification for businesses as it saves you from having to register locally in all EU member states where your consumers are located. However, you still need to determine and comply with the local VAT rates in these countries, even on the MOSS. 

Lastly, change is coming next year as the MOSS will be extended into a One Stop Shop and cover cross-border B2C supplies of goods in the EU. If you have any questions on this change, or if you are concern that the services you supply trigger a VAT liability, feel free to get in contact with us.  

This is a post by Louise Boussemart, VAT Researcher at SimplyVAT.com

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