It should come as no surprise that digital services are increasingly being provided across borders. After all, these services are considerably easier for customers from other EU Member States to access than other kinds of service. How VAT should be handled in such situations is rather more complex, however. This resulted in the introduction of simplified regulations at European level and these are set to be simplified further from 1 January 2019.
What are digital services?
Digital services are services provided over the internet or a digital network. Such services are largely automated and cannot be offered without information technology. Examples include providing access for software downloads or providing streaming services. Selling physical products via an online shop does not constitute a digital service.
Mini One Stop Shop (MOSS scheme)
Since 1 January 2015 businesses providing digital services to private individuals within the EU have been obliged to pay VAT in the Member State in which the private individual making the purchase resides. As in many cases businesses will not be VAT registered in the customer’s country, they can submit a simplified return via the MOSS scheme. In short, this scheme allows businesses to declare and pay the VAT they owe in another EU Member State in their own country. The tax authorities then ensure that the return submitted and the payment are sent on to the other Member State, significantly reducing the administrative burden for businesses.
Although the introduction of the MOSS scheme has undoubtedly been a success, the European Commission has identified room for improvement. Do you provide digital services or are you already making use of the MOSS scheme? From 1 January 2019 submitting your VAT return may become even easier as a result of the following changes:
- Up to a turnover of € 10,000 from cross-border digital services your business will not owe any foreign VAT. In such a case the VAT may be levied by your own Member State. This will reduce the administrative burden. However, you may still opt to keep using the MOSS scheme, e.g. because the tax rate is lower in another Member State.
- If you apply the MOSS scheme, as a business you may follow the invoicing rules of the Member State in which you are registered.
- If your total annual turnover from digital services is below € 100,000, in future a single piece of evidence will be sufficient to determine where the private individual making the purchase is located. In other situations two pieces of evidence will still be required.
- The MOSS scheme may also be used by non-EU businesses, if they are VAT registered in a Member State.
By introducing these changes, the European Union hopes to ease the administrative burden to some extent for businesses that provide these services. Such businesses will not only save money, but also a great deal of time!
Are you unsure whether you provide digital services?
If you have any questions on this subject, please get in touch with your contact at Visser & Visser Tax Consultants.