As of January 1st 2015, EU online service providers will face one of the most significant changes ever to VAT rules. To date, European B2C providers of e-services, such as online games, could charge their services with their local VAT. But next year these providers will have to charge the VAT rate of the customer’s country, where the service is consumed.
From January 1st 2015, Article 58 of Directive 2006/112/EC will be amended:
The place of supply of the following services to a non-taxable person shall be the place where that person is established, has his permanent address or usually resides:
Sending or receiving signals by wire, radio, optical or other systems.
Fixed and Mobile Telephony, fax and connection to the internet.
Radio and television broadcasting services;
Electronically supplied services;
Video on demand
Also known as “TBES”.
Where is the customer or how do you determine the customer’s location?
The presumption is that the customer’s location is identified using two items of non-contradictory evidence.
These pieces of evidence can be:
- Billing address
- IP address or other geo-location
- Bank account location
- Country where the Credit Card is issued
- Mobile country code stored on the SIM card (for mobile telecommunications)
- Other information that the tax authorities deem relevant
Options to meet the new requirements:
One option is to use the MOSS Scheme “MIN-ONE-STOP-SHOP”. There are two types:
- MOSS Union Scheme – for EU based suppliers
- MOSS Non-Union Scheme – for suppliers based outside the EU (replaces current VoES scheme)
The alternative could mean having VAT registration in all 28 EU member states
What is MOSS, Mini One Stop Shop – Union Scheme Principles:
- VAT Registration, single VAT return and VAT payments only in one country
- Already applicable for non-EU suppliers of electronically supplied services (B2C)
- Invoicing requirements different for each member state
- Returns in Euro (Euro zone countries) or currency of the EU country you register in
- Registration opened on 1st October 2014
Where a supplier has a business element in a member state MOSS cannot be used for that member state
What you need to consider as a business:
- Impact on pricing/profit margins
- Maintaining a constant price across the EU have a variable margin?
- Change pricing to pass VAT differential on to the customers (VAT rates currently range from 15% to 27%)
- Invoicing requirements
- Customer Contracts
- Familiarise yourself with MOSS portal
What do you need to consider regarding your Dynamics GP system:
- Decide which GP companies will be MOSS Registered
- Ensure that any non-VAT registered customers have the VAT number field empty
- Identify items that fall under the new regulations definition
- Create the appropriate Tax schedules and Tax Detail ID’s
- You will need to identify which items which now need to be treated as Electronic and for the Sales Tax Option assign the appropriate Tax Schedule
- You will also need to create new Country Specific Tax Schedules with Sales Tax Details based on the Country appropriate VAT %
It is worth noting that VAT rates for electronic services vary significantly throughout the EU, from 3% cent in Luxembourg up to 27% in Hungary. Currently, a number of larger businesses have based themselves in Luxembourg to benefit from the low local VAT rate for such sales (e-books for example) but from 2015 new legislation will stipulate VAT charges from the specific countries in which sales are made.
- What document templates may need amending to show the additional VAT Analysis
- Moss requires quarterly tax periods
Dynamics GP – Where registered for MOSS:
- Which Dynamics GP subsidiary (fixed establishment) will be MOSS registered?
- Customer records: Identify consumers (no VAT number)
- Identify items that will fall under the ESS definition
- Invoice and Return (Credit Note) templates
- Set up quarterly tax periods
These changes are becoming a global trend, so similar changes may be coming for other countries in the near future.
Microsoft have not yet released information on how systems will cope with the new legislation. As soon as we have an update we will pass the information on to our customers.