How to manage VAT on Digital Services

"If you are providing telecommunications, broadcasting or electronic services ('digital services') to consumers across the European Union, you must comply with new laws concerning VAT on digital services and account for VAT where consumers live or are located."

The EU introduced these new rules amid concerns that suppliers trading cross border were avoiding VAT payments on digital services to consumers. Legislators also wanted to create a level playing field between different-sized suppliers.

Digital services supplied to businesses are already subject to VAT in the recipient’s location. However, the recipient is required to account for VAT, not the supplier. Instead, under these new rules for consumer transactions, it's the supplier that is accountable.

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VAT on Digital Services

So, what do you need to do if you are supplying digital services cross border in Europe and beyond? Here are E RADAR's key points:

1. What are digital services?

The new rules concerning VAT on digital services apply to any organisation providing the following services to consumers (ie. individuals purchasing your digital services in a private, not business capacity):

broadcasting (television or radio programmes); telecommunications (both fixed and mobile); internet connection; e-services; online gaming (including gambling); video on demand; apps; music downloads; gaming; e-books; online magazines; software and software updates/maintenance and online auctions.

Using the internet to advertise or sell services, for example the sale of tickets to events does not count as a digital service.

2. In what country does my business account for VAT on digital services?

You must now determine where your customers live or are located, known as 'place of supply', You must now declare and account for VAT in any country which is your place of supply. So, if you are selling digital services to consumers in Italy and France, you will need to register with the tax authorities in both countries and pay the relevant VAT to them accordingly.

3. How do I comply with VAT reporting requirements?

You can comply with VAT reporting requirements in two ways, namely (1) contact the relevant tax authorities individually in each country, or (2) use HM Revenue & Customs' VAT Mini One-Stop Shop (VAT MOSS). The one-stop shop is much simpler to use. HMRC only requires you to submit a single quarterly VAT return and payment for your EU sales, and will forward on your VAT return to the relevant tax authorities.

4. How do I access VAT MOSS?

To use the VAT MOSS service, you must be registered for VAT in the UK, even if your corporate income is below the VAT registration threshold (£81,000 per year), by the tenth day of the month following your first sale of digital services to a consumer in another country. This can be awkward for companies with annual sales well under the VAT registration threshold, but has to be done.

Any VAT refund claims you do make should be limited to amounts that can be directly attributed to your EU sales.

5. I need further help!

Don't worry, E RADAR can help you to set up your VAT obligations for selling digital services into other countries. Just contact us via email or by phone +44 07428 253510

Further Information

VAT: Businesses Supplying Digital Services to Private Customers - HM Revenue & Customs


E RADAR Comment

The new rules on VAT on digital services do nothing to encourage more cross border trading within the European Union nor to meet the aims of the EU's digital single market.