VAT Mini One Stop Shop

Changes to VAT rules for electronic services from January 2015, introduction of VAT mini one stop shop

New EU VAT rules are coming into effect which will further complicate already complicated things for providers of electronic services.  The VAT Mini One Stop Shop Rules for electronic services are commencing in January 2015.

The new rules themselves aren’t terribly complex, and are relatively straightforward (in a VAT context).  It is the practicalities of implementing these new VAT rules which I predict will cause problems.

What are electronic services (e-services) for VAT

E-services are one of the exceptions to the VAT rules.  This is because the VAT fundamentals have failed to keep up with realities of modern technology.  Place of supply is fundamental in determining VAT treatment and the normal rules don’t fit with electronic services.  There have been various changes to VAT on e-services rules in recent years and this is the latest.  So what are e-services for VAT:

  1. website supply, web-hosting, distance maintenance of programmes and equipment,
  2. supply of software and updating of it,
  3. supply of images, text and information, and making databases available,
  4. supply of music, films and games (including games of chance and gambling games) and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events, and
  5. supply of distance teaching

Mere communication between customer and supplier by electronic means does not constitute an electronic service.

What are the current rules for VAT on e-services

There are 2 main rules for VAT on e-services within the EU.  Supplies to private consumers and supplies to VAT registered business.  Currently VAT is charged on supplies to consumers in the supplier’s country.  So an Irish business supplying e-services to a French individual would charge Irish VAT.  If the supply is to a VAT registered business then, provided the customer’s VAT number is provided and verified, the Irish supplier charges zero per cent VAT.

There are also rules covering non-EU businesses supplying to EU customers but they aren’t changed so we’ll not cover them here.

What are the new rules for VAT on e-services

From January 2015 VAT will be charged on supplies to private consumers in the recipient’s country.  So an Irish business selling e-services to a French individual in France, will charge French VAT.

What does this mean

This means that your accounting, payment and/or ecommerce systems must be able to determine how much VAT is charged.  It must also be able to record all the information to be returned to the relevant tax authority.

Does it mean I need to register for VAT in EVERY EU country in which I have customers?

No, a Mini-One-Stop-Shop (MOSS) is being introduced.  It means that you can submit all the relevant VAT information, and payments, via the Irish Revenue.  Revenue will then distribute to the relevant tax authorities in other countries.

What that means is your software (shopping cart, payment processor, accounting software) will need to be able to differentiate between consumers and business, their location and the VAT rate applicable.  All these things need to be recorded in order to make a return under the VAT MOSS system.  My experience has been that many providers of e-services treat all EU sales as being non-business and charge Irish VAT.  This will no longer be possible.

What should I do in preparation?

Review all you software to ensure it is capable of capturing, recording and reporting the VAT MOSS information.  You can start make changings early by configuring your systems to differentiate between business sales and non-business (if you don’t already do this).  But remember that for business sales you must verify the non-Irish VAT number before applying zero VAT.

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