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;
  • Databases;
  • 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.