Non-EU providers VAT on e-services
For non-European Union companies providing digital services (software, server facilities, online films, music, books, Ap’s for phones etc.) to European Union consumers, there were special rules for charging and reporting Value Added Tax. This was known as the non-Union Mini One Stop Shop (MOSS).
You may read here about the changes in 2015 to EU providers of electronic, broadcast and telecoms B2C services. This replaced the VoES scheme on 1 January 2015.
Below is an explanation of the potential VAT liabilities, and some ideas for reducing and managing this burden.
What are electronic services for VAT
Any services supplied digitally are considered as electronic services within the EU. These include:
- Servers for websites and data storage (if the servers are within the EU, then special rules apply)
- Subscriptions to internet games, newspapers or other publications etc
- Paid-for downloads of books, music or videos
- Telephone or tablet App’s (Applications), ringtones etc which are charged for
How to manage the VAT liability on electronic services – VAT one-stop-shop
Non-EU companies providing the above digitised services to local consumers must comply with EU VAT compliance regime. This meant registering their company with the tax offices of each country where they were selling, and then making regular filings and payments of VAT.
However, this was all simplified in 2003, and been incorporated into the new 2015 reforms. Non-EU companies may now register with just one of the 27 member states’ tax authorities, and submit all filings and payments to that tax office via the MOSS portal. This will include country locations of each customer (with the appropriate national VAT rate charged), which the tax office will then use to allocate and split the VAT payment between the other appropriate tax authorities.
VAT planning through a European subsidiary
Many larger non-EU companies have elected instead to form local companies in one of the EU countries, and contract with EU consumers through this company/branch. This gives special VAT advantages as (only until 2015), the branch would only use the VAT rate of the country where it is established. Based on this, many companies (e.g. Amazon) have elected to locate their European branches in Luxembourg with the EU’s lowest VAT rate, 15% (3% on digital books).
Agency agreements to avoid European VAT
Increasingly, non-EU companies are turning to agency agreements with local distributors to avoid the burden of charging and complying with VAT. The is perfectly lawful, and shifts the burden of the tax compliance to the distributor.
Norway and Switzerland
Whilst not part of the EU, Norway and Switzerland operate similar VAT systems. Both countries now require non-resident, foreign companies to charge their local VAT rates. Companies must register for VAT with the local authorities, and report and make payments in a similar way to resident suppliers of electronic services.