The so-called “Place of Supply” or “VATMOSS” law will apply.
What is the VATMOSS Law?
First of all, a disclaimer. I am not a lawyer or accountant. The following post is my personal view and interpretation of VATMOSS. You should take appropriate professional advice before making any decisions concerning VAT issues in the EU. I am not responsible for any actions or inactions you take or do not take as a result of reading this post.
VATMOSS will affect anyone selling digital or physical products or services to customers located within the EU, no matter where in the world the seller is located.
VAT or Value Added Tax is the EU’s sales tax. The rate of VAT charged varies from country to country. And many countries have more than one VAT rate for different goods and services, as well as differing rules of applicability for charging the tax.
Prior to 2015, VAT was always charged in the country where the seller was located. There was also a so-called VAT sales threshold under which you did not have to register.
As of 1 January 2015, new legislation changes the place of tax. From this date, under the new regulations of VATMOSS, Value Added Tax must be applied at the rate prevailing in the country where the buyer – and not the seller – is located.
One of the aims of this change in the VAT law is to prevent large corporations from registering in a low-rate VAT country for tax avoidance purposes.
A popular choice of location registration for some large companies was Luxembourg which has a much lower rate of VAT than other countries in the EU. These companies then charged that low rate to all their customers in the EU regardless of where they live.
Whilst on the one hand, the VATMOSS tax change will crack down on the tax avoidance games of the big name companies, the change will apply to small companies as well.
And this change also makes applying the tax much more complicated and costly for all businesses.
There are some 28 different countries in the EU and each one has it’s own VAT tax rates and specific VAT regulations.
Unfortunately, the legislation covering this tax change doesn’t appear to have taken into account the practicalities involved for small businesses in having to comply with this new tax ruling. Especially for smaller scale e-commerce based businesses.
MOSS Makes it Easier
To try to make things easier, the EU has announced a system called MOSS – or “Mini One Stop Shop”.
MOSS allows you to choose to register in ONE single EU country only and then make all your VAT tax returns to that country alone.
This is instead of having to compile a return for every single EU country individually where you have customers. This doesn’t even bear thinking about – for language reasons, let alone anything else.
You still have to charge the applicable rate of VAT for the country where each of your customers is located. However MOSS means you only have to deal with the one single country where you have registered via MOSS when sending in your VAT returns and VAT payments.
The important thing to understand is that the effects of these VAT tax changes are global. They apply literally to ANY seller of products or services within the EU which are subject to VAT, no matter where in the world that seller is based.
What counts is, if you sell to someone in an EU country, then you are required to charge VAT at the current rate applying in that country, and to forward that VAT to the tax authorities along with your tax return.
You are the one held responsible for levying the appropriate VAT for your product or service – according to the specific country where each of your customers is living.
Basically, the way you will be have to do this will be to request the location address of your customer and also record the IP address of the computer being used by the buyer to make the purchase.
So your e-commerce store and payment processing software needs to be able to meet these requirements.
What’s more, you are now expected to keep archived records for up to 10 years to prove the details of the sales you have made in case of audits and enquiries by the EU VAT authorities later in the future.
What Are Your Options With VATMOSS?
So, what to do?
If you’re an international seller your options are either:
– to comply with this new law by registering with the MOSS agency in one EU country. For most international businesses, the best place to register for VAT from the ease of language point of view is probably the UK or the Irish Republic.
If you sell in the Eurozone (not all of the EU uses the Euro) then Ireland might be better as Ireland uses the Euro, which will make accounting a little easier.
– or alternatively, you can simply avoid the whole issue and not sell to customers based in the EU. Which of course means you will lose out on sales and revenue.
Maybe the best way to decide what to do is to look at how much you sell in the EU versus what you sell elsewhere in the world, and the overhead involved for you in complying with the EU VATMOSS regulations.
If your EU sales are only minimal, and you don’t plan or expect your EU sales to increase appreciably in the future, then it may be better simply to refuse to sell to potential customers in the EU.
Either way, the whole thing is really a pain in the neck for smaller businesses.
The best I can say is to recommend you obtain specific advice about your own situation from your tax accountant.
And if you do sell to customers within the EU, then make sure that your e-commerce and payment gateway software and systems are fully compliant with the new VAT MOSS “Place of Supply” law.
It remains to be seen how this VAT regulation change will work out in practice.
But the fact is for now, the onus is entirely on you to make sure your business is compliant with the new EU VAT law.
What about you and your business? How are you planning to respond to the EU’s VAT changes?