The VAT rules for suppliers of broadcasting, telecommunication and e-services (“BTE services”) to consumers across Europe are changing and will alter the country in which those supplies are treated as taking place.
Who needs to know about this change?
Only suppliers of BTE services who make their supplies to consumers (i.e. private individuals) in the EU are affected. Businesses who supply other businesses will not be affected.
What are BTE Services?
BTE services include: (i) radio and television broadcasting; (ii) the transmission of any information by wire, radio or optical systems; (iii) the provision of access to global information networks; (iv) website supply and web-hosting; (v) the electronic supply (i.e. over the internet) of software and updating of software, (vi) the electronic supply of images, text and information (including, for example, e-books); (vii) the electronic supply of music, films and games; and (viii) the electronic supply of distance teaching.
Currently, the location for VAT purposes of a supply of BTE services to consumers is determined by the country in which the supplier is located unless the consumer is outside the EU.
From 1 January 2015, the rules will change and the supply of BTE services to consumers in the EU will be treated as taking place in the country where the consumer is located.
What impact does the change have?
VAT is chargeable on the price paid for services by reference to the country in which a supply is treated as taking place. A supply made in the UK is subject to UK VAT, a supply made in France is subject to French VAT, etc.
If your business is located in the UK, the supplies of BTE services you make to consumers in the EU now are subject to VAT in the UK. However, from 1 January 2015 those same supplies will be subject to VAT in the country in which the consumer is located (which will still be the UK if the consumer is located in the UK, but will not be the UK if the consumer is located outside the UK).
This will mean that you will have to charge VAT at the rate appropriate to the country in which the supply is treated as being made. By way of example, the standard VAT rate in the UK is 20%, but the standard VAT rate in Luxembourg is 15% (to be increased to 17% in 2015) and the standard VAT rate in Sweden is 25%. The full list of rates for all EU countries can be found here.
This is likely to have a major impact on the prices charged by e-services companies that have set up EU sales companies in countries with a low VAT rate (e.g. Luxembourg) as they will now have to charge VAT to consumers at the rate applicable in the consumer’s country rather than at the low rate currently applicable.
But what does that mean in practical terms for my business?
If you are a supplier of BTE services to consumers in the EU and you are currently charging VAT at a single rate based on your business location, you will need to change the VAT amount that you charge based on the location of the consumer to whom you make supplies.
If the VAT rate in a consumer’s country is higher than your current VAT rate, you will either have to accept a lower profit for sales to consumers in that country, or increase prices to take account of the additional VAT. Conversely, if the VAT rate in a consumer’s country is lower than your current VAT rate, you will make additional profit if you keep your prices static, unless you decide to pass the saving on to consumers.
Does that mean that I need to register for VAT in every country in which I make supplies?
In theory, you could do this, but these new rules recognise that this would be an administratively burdensome task. In order to avoid this, a special regime called the ‘mini one-stop shop’ (“MOSS”) will be available.
In summary, the MOSS will allow you to register in just one country (the country in which your business is located) but charge VAT at the rate according to each country in which you make your supplies. For UK based businesses, this will mean that you will be able to issue invoices to consumers in, for example, Sweden with a VAT rate of 25% and report it on your normal VAT MOSS return. HMRC will arrange for the VAT on that invoice to be paid over to the Swedish tax authorities.
What about non-EU businesses?
Non-EU businesses with no fixed establishment in the EU are already subject to special rules on the supplies of e-services. Supplies by these non-EU businesses of e-services are already treated as taking place in the country in which the consumer belongs. Their VAT registrations are dealt with under the VAT on E-services (VoES) scheme which has been in place for a number of years. Non-EU business with no fixed establishment in the EU should continue to use that scheme.
On the other hand, if a non-EU business does have a fixed establishment in the EU and it makes supplies of BTE services to consumers in the EU it will need to make a MOSS registration and it can choose in which member state to do this.