EU VAT rules summary of changes 2016

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I was quite alarmed when I read an article on the new VAT rules across the euro zone back in early 2014 that suggested they could drive small online entrepreneurs out of business completely.

The new rules were effective from 1 January 2015 and a full guidance has been issued recently 18th January 2016.

As far as we at WA are concerned the rules mainly apply to any e-commerce operations. I believe this may affect some of your on line businesses in some manner, although i expect most will be unaffected. Check out the rules in the last paragraph below for a short overview.

I have examined the detailed information supplied on the UK's government site and some aspects are of some concern. I have extracted some statements below for your perusal, you may wish read the complete document yourself to determine if you are affected. They are important changes that online businesses must comply with.

From 1st of January 2015 the rules around the European Union VAT place of supply of services will change. This will affect the sales of digital services, broadcasting telecommunications, and the services from a business to a consumer (private individuals, and on business entities, eg public authorities or charitable bodies). The place of taxation will be determined by the location of the consumer.

Where the digital services are supplied on the business to consumer basis, the supplier is responsible for accounting for VAT on the supply.....

to the tax authority

at the VAT rate applicable

In the consumer EU member state.

The new rules only apply where a UK business meets all the following criteria:-

Supplies digital services from the UK to another EU member state (goods and non-digital services sold over the Internet are not within scope.)

Supplies those digital services to a private consumer in another EU member state.

Charges for that supply (digital services provided free of charge are outside the scope of VAT)

Businesses outside the EU (for example the USA) that supply digital services to consumers in one or more EU member state are also affected by the changes.

Electronically supplied services..

The rule change only applies to the services that are electronically supplied and includes things like:-

Supplies of images or text, such as photos, screen servers, e-books and other digitised documents e.g. PDF files.

Online magazines.

Website supply web hosting services.

Supplies of software and software updates.

Advertising space on the website.

Sales not affected by the change....

Using the Internet, or some electronic means of communication, just to communicate or facilitate trading, does not always mean that the business is supplying e-services. Using the Internet for the following doesn't count.

Supplies of goods where the order and processing is done electronically.

Supplies of physical books, newsletters, newspapers or journals.

Booking services or tickets to entertainment events, hotel accommodation or car hire.

Educational or professional courses where the content is delivered by a teacher over the Internet or electronic network (in other words using a remote link.)

Off-line physical repair services of computer equipment.

Advertising services in newspapers, on posters and on television.

Services of lawyers and financial consultants who advise clients through email.

Defining electronically supplied .......

This covers e-services which are automatically delivered over the Internet, or another electronic network, where there is minimal or no human intervention. In practice this can be either :

Where the sale of the digital content is entirely automatic, for example a consumer clicks the "Buy Now" button on the website and either

The content downloads onto the consumers device, or

The consumer received an automated email containing the content, or

Where the sale of the content is essentially automatic, and the small amount of manual process involved does not change the nature of the supply from an e-service.

All ‘e-services’ that are ‘electronically supplied’ in the ways outlined above are ‘digital services’ and are covered by the rule changes.

The above may be of concern to some WA members, however it is generally alarming mainly to those involved in selling items that are automatically downloaded and not those manually e-mailed. So PDFs automatically downloaded from site or e-mailed would come under the new rules, as would paid for e-books, stock photos, and online courses consisting of pre-recorded videos and downloadable PDF's without the support of a live tutor, or any link to online content or download sent by manual e-mail.


I hope this is useful to WA members, the full rules are available from the site

www.gov.uk .....look for the link containing VAT and 18th Jan 2016.

Message me if you have questions




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Recent Comments

6

Interestingly this is an attempt to create a level playing field erasing the advantage of the big guys who are paying much lower VAT than the small business person. Unfortunately it is creating an accounting nightmare for the small individual entrepreneurs it was designed to help. As a result many of the little guys are withdrawing from Internet trading entirely.
There are ongoing discussions to find some solution to the problems the new rules have created. We live in hope.

Gosh, even U.S. residents selling to U.K customers. Frightening, if every EU member has a separate VAT and applicable rules. I would think that they would make it for something priced over XXX amount; so that it is not cumbersome for small businesses.

Do they have separate VAT rules for physical products, Dave?

--Fran

The new rules mainly apply to electronically supplied items. I hope my blog clarifies the items principally affected.
As far as physical products are concerned the rules remain unchanged.
The terminology applied to physical items needs to be understood very clearly.
As I understand it ( and I do not pretend to be an expert) the general rule If you are in business and sending an item(s) from a EU member state to another different E.U. member state, this classed as a "Despatch" and VAT is not applied. ( Known as zero rated)
However if you are sending to another country outside the EU area this is termed an "Export" and the the correct amount of VAT is to be applied.
Certain goods need an export licence but this is unlikely to affect trades by WA members.

You will appreciate I have no information on the rules applicable to other tax regimes in the USA or elsewhere... But am I sure a Google search of relevant Government tax sites will prove most illuminating.
If intending to trade internationally it is advisable to check out one's own country rules and regulations to avoid any penalties.
Support Free trade !!

Yes, free trade!

I wonder if big Affiliate companies like Amazon handle all of that VAT stuff for us. I suppose so; as they have the most to lose.

Yes, I realize that your post pertains to digital, and this really is important, here, because many of us will sell our own or others' digital products or services. Excellent post and I've faved it, tagged it, liked it; and am sure that I'll refer back to this more than once.

Thanks, David!

--Fran

Glad I could be of some small help.... Best of luck in determining the VAT rules where you reside.

Hi Dave thank you for providing this information.. Storm clouds are definitely gathering. Governments around the world are struggling to grapple with the explosion of online trading.It is making for interesting times for all involved in the industry. it is a case of adapting to survive and thrive.
Alexander

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