Changes to VAT on digital services in the European Union 2015

Changes to VAT on digital services in the European Union

The European Directive 2002/38/EC* has introduced new VAT rules involving business to consumer supplies of digital services, which will come into force on the 1st January 2015. The EU has introduced a unique online service, the VAT Mini One Stop Shop (VAT MOSS). We explain the impact of this decision.

Changes for individuals

The new rules are being introduced so that citizens of the EU will be charged the VAT rate of their country of residence and no longer the VAT rate in the jurisdiction where their digital services provider is based. This means that European individuals will be subject to the VAT of their country of residence, regardless of the country from which they purchase a digital service. A UK resident who buys an e-service from a provider based in the Netherlands will be subject to the UK VAT in force (20%), for example.

VAT rates vary from 15% in Luxembourg to 27% in Hungary. This new directive may increase or decrease these rates in some countries (see the list of VAT rates in EU countries**).

Please make sure you have your address details correct in our billing system so that the correct VAT can be calculated.

Recurring payments; important update:

This above means that if you have setup a recurring payment this recurring payment may be wrong, if your tax rate in your country is 21% there is no need ot change at this moment in time as the Tax rate on your account was before also 21%; but if your tax rate in your country is Higher or Lower you have to cancel your recurring payment with your payment provider (Either by logging into Paypal or 2Checkout to remove the recurring payment) at the next invoice you are able to setup a recurring payment again. Please note that if your country changes its tax rate you must also update your recurring payments !

If you are a customer within the EU and your country has a different tax rate as 21% please follow the following steps  for your recurring payment to stop:

To cancel your recurring payment in Paypal:

– Log in to your PayPal account.
– Click the ‘Settings’ icon at the top of the page.
– Under ‘Payment settings’, click Pre-approved payments..
– Use the filter to select the seller whose agreement you want to cancel and click Cancel.
– Click Cancel Profile to confirm your request.

To cancel your  recurring payment in 2Checkout:

– Please contact our sales department for assistance at least 5 working days prior the recurring payment.

Changes for Companies

If your company is located within Europe and you have a valid VATid added to our portal nothing will change for you. If you are located within Europe but do not have a VATid you will not be considered a company and will pay VAT as described above.

For companies or consumers outside of Europe nothing will change.


 

Please also read our earlier article here.

*http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules
**VAT rates in EU countries http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf