From 1 January 2015, there will be a fundamental change in the place of supply for VAT purposes of electronically supplied services by EU established businesses to non-business customers.
Online gaming and gambling constitutes electronic services, and this article deals with the new rules for electronic services.
What is changing?
The place of supply rules govern where a supply takes place for VAT purposes. It determines where suppliers must register for VAT and charge VAT on their supplies. At present, where the supplier is established in the EU the place of supply of businesses involved in electronically supplied services where the customer is a consumer (i.e. a private individual or an organisation, such as a charity, which is not in business) is the jurisdiction where the supplier is established. The supplier is therefore able to charge VAT at the rate in the jurisdiction in which it is established, regardless of where its customer is based.
From 1 January 2015, there will be change in the place of supply of these services where the customer is a consumer. Under the new rules, the place of supply will be where the customer belongs (or is presumed to belong). A customer will generally belong where it is registered, has its permanent address or usually lives but special new presumptions have been introduced to assist suppliers conclude where the VAT is due. As a result of the change in the place of supply, a supplier may need to be registered for VAT in each EU Member State where its customers are based (potentially up to 28 Member States). A mini one stop shop has been introduced to alleviate the administrative burden. Crucially, the new rules end the distortion between business based outside the EU and EU based businesses. The rules for non-EU businesses and EU businesses will be the same.
What services will be affected by the change?
Services affected will include the following:
- Website supply/web-hosting;
- Online advertising;
- E-books/online newspapers;
- Music, films and games, including games of chance and gambling games;
- Distance teaching.
The list above is not exclusive and suppliers should give consideration to whether their supplies will be caught by the changes.
What is the mini one stop shop?
The one stop shop (OSS) has been extended to EU businesses and covers telecommunications, broadcasting and electronically supplied services. The OSS is an optional system which allows payments and returns to be made electronically from a single Member State. EU suppliers must register for the OSS in the jurisdiction where they have their main place of business. Non-EU suppliers, who must have no EU establishment, can choose the jurisdiction where they would like to register for the OSS (and this will be called their member state of identification).
Using the OSS may alleviate some of the administrative burden on suppliers caused by the changes. Suppliers will be able to use the OSS, instead of registering for VAT in every Member State where it has customers.
UK: Where is the place of supply for electronically supplied services to business customers
Supplies of electronically supplied services to business customers will not be affected by these changes. Supplies to business customers will continue to take place where the customer belongs, subject to the use and enjoyment rule. This means that business customers will continue to be liable to account for any VAT due using the reverse charge (i.e. it will account for VAT in its own jurisdiction).
What is the use and enjoyment rule?
The use and enjoyment rule only applies where the supply is enjoyed in the EU, but the customer belongs outside the EU (or vice versa). The idea that is that if electronic services supplied to a business are effectively used and enjoyed in the EU, even though the customer is based outside the EU, EU VAT should be charged. What constitutes “use and enjoyment” is not always clear. Where a jurisdiction provides that VAT should be charged where the service is used and enjoyed, not where the customer belongs, VAT will be charged in the place of use and enjoyment.
What should suppliers be doing to prepare for the change?
Businesses supplying electronically supplied services should consider:
- whether they make cross border supplies of electronically supplied services;
- how to identify whether their supplies are made to non-business customers and where their customers belong;
- where they should be registered for VAT;
- whether their services would be caught within the use and enjoyment rule – the rules are applied differently in different Member States;
- whether it would be beneficial to register for the OSS;
- how they will meet their compliance obligations in each EU jurisdiction in which they are registered.
Quick Reference Guide – Changes to the place of supply of electronically supplied services from 1 January 2015*
Click here to view table.