Selling digital products/services? EU VAT changes on 1st January 2015
[This is an informational post raising issues and sharing useful links. It does not constitute financial or legal advice. Please seek professional guidance for your circumstances.]reteks
Are you selling digital products to private consumers in the EU? Are you ready for the new EU-wide VAT laws coming into force on 1st January 2015? (And if you sell physical products, be aware that similar changes are coming in in 2016.) The new rules about the EU VAT place of supply of services affect the sales of digital services (broadcasting, telecommunications, e-services) and digital products to consumers (private individuals and non-business entities eg, public authorities or charitable bodies).
The place of taxation will be determined by the location of the consumer, not the supplier, as is currently the case. This entails VAT returns to the place of consumption rather than just the place of supply.Watch movie online The Lego Batman Movie (2017)
The VAT threshold in the UK is currently £81k, whilst this threshold will continue to apply for domestic sales, it won’t apply to your cross-border sales to EU member states.
Any automated digital sales not involving ‘significant human intervention’ — i.e. sales that are fulfilled automatically without human processing — to non-businesses (individual consumers, charities and public bodies) in the EU are affected, such as:
One solution: Some traders are deciding to change platform settings or providers so that they can send the same products manually to circumvent the rules. Attaching a music file or PDF to an email is compliant, but emailing a link to a download page isn’t. [Update: People are reporting getting conflicting information from their respective governments on this — i.e. member states are interpreting the rules in different ways. This means you could be compliant in some states and not others — shambles!] Others plan to sell physical versions of the products with a ‘free gift’ of a digital download version. Such workarounds are obviously much less efficient and eco-friendly, and no doubt loopholes like this may be closed over time. Keep abreast of changes.
If you use a platform or marketplace that takes care of the below requirements (see ‘Platform/Marketplace’, below), you do not need to do anything. Otherwise, if you want to continue or begin to sale digitally-delivered products or services to non-businesses in the EU, you will be legally required to:
HMRC guidance states that:
“if the platform operator identifies you as the seller but sets the general terms and conditions, or authorises payment, or handles delivery/download of the digital service, the platform is considered to be supplying the consumer. They are therefore responsible for accounting for the VAT payment that is charged to the consumer.”
If using such platforms and marketplaces, you do not need to register for VAT. These include, ironically Amazon and iTunes; the kind of big organisations that the EU claim the law is trying to target, creating a ‘more level playing field’ for small businesses. (The administrative burden for small and micro businesses is hardly a playing-field leveller!)
If you are a sole trader with multiple sole-trader businesses or product/service clusters, note that you can’t register one business for VAT and not another; VAT registration is for you the individual. Talk to your accountant.
If you’re outside of the EU, you should register for VAT MOSS in a member state and they will handle the other countries’ tax returns. As noted above, this isn’t a change for you; you should have been doing this since 2003, tho’ it’s becoming clear many non-EU businesses weren’t aware of this. Many American micro- and nano-business owners have been contacting their congressman to try and get information on whether and how this would be enforced; I haven’t yet seen any reported responses.
The official HMRC guidance that says if you’re not selling in the EU outside of the UK, you’re not affected. See this HMRC flowchart (PDF). However, it is against EU discrimination law to sell to one state and not another, without a ‘legitimate’ reason to do so. This is another grey area and one where you might need specialist advice.
Confused? There’s a tonne of stuff to read, and a lot of lobbying being done in the last couple of months, and the media recently started to take notice — start with
Update on 24/1/2015 — read this review of what’s been happening in January, from the EU VAT Action Group:
https://www.facebook.com/groups/352033768310164/ (Germany VAT Action group)
https://www.facebook.com/groups/TVADigitale2015/ (France VAT Action group)
A self-organised EU VAT Action group has been successfully lobbying for change; get involved via the links above, and see the latest update from HMRC about a simplification until June 2015. The VAT action group are currently seeking translators to help get this information out to all member states; particularly this survey, which you should complete if these changes affect you: http://euvataction.org/take-action-now/complete-the-survey/.
Get in touch via www.facebook.com/EUVATaction (if you’re not a Facebook user, you can still view pages like this one, although you can’t send messages to page admins.)
*Bandcamp are moving quickly! They recently announced they would provide you with the VAT info you need for filing your tax return(s), that if you know you fall below your country’s VAT exemption threshold (£81,000 in the UK), you can change your profile settings to disable VAT collection for domestic purchases, and that they were making changes so that they would handle those returns for you within the first half of 2015 (at which point you wouldn’t have worry about any of it). They have just announced:
“If you happened to see our earlier help item about this, we planned to roll out a temporary solution where artists submitted the tax themselves. We’ve decided to accelerate the changes to our system such that the interim step is unnecessary.”
Keep an eye on their blog.
I am not a VAT specialist or accountant and am trying to keep up with these changes in between my own business activities and university work. Since my international coaching involves my live human presence (no holograms yet), I am so far unaffected — but my business plans for 2015 are. I’ll try to keep this as up-to-date as possible but please use the links above for updates direct from the various horses’ mouths! The Facebook groups in particular are full of creative solutions for business owners affected — from compliant plug-ins to contact information to the various politicians you should be lobbying to take action on your behalf.
[Img credit: www.easydigitaldownloads.com — check out the services they’re offering in response to the changes]