EU considers minor €5k VAT MOSS registration threshold

The EU is considering imposing only a minor VAT registration threshold of €5,000 for providers of digital services to consumers across the single market.

The update will be a major disappointment for the UK digital industry, which has undertaken a major lobbying campaign for a €100,000 threshold to lift small and micro digital businesses out of the 2015 EU VAT MOSS (see below) burden – compliance typically costs £1,000 per annum. Most EU tax authorities had agreed in September 2015 to the introduction of a threshold. This followed reports of micro companies avoiding the new VAT.

Andrus Ansip, the European Commission (EC) Vice-President for the Digital Single Market, spoke out against the lack of a threshold as damaging to the EU’s digital economy, a top-3 priority for the EC.   This idea comes as only 12,000 businesses across the EU have registered for MOSS reporting. The EC had anticipated 1 million.

At the 9 September Fiscalis meeting, where tax authorities from the 28 member states discuss shared VAT issues, it was suggested that a threshold should be proposed in 2016 by the EC. Whilst this would take 2-5 years to agree and implement, it did appear to open the door to a compromise for the UK and others. However, there has been considerable resistance from Germany, Denmark, Italy and others to the idea of a high threshold. This has resulted in the EC to now consider the €5,000 threshold concession.

The threshold would apply to the new 2015 digital services (apps, software, downloads of games, music, video and e-books) VAT rules for sales to consumers around Europe. Until 1 January 2015, providers could just charge their national VAT rate for sales to consumers in other EU countries. This switched in 2015 to having to charge the VAT rate of the consumer’s country, and pay the VAT collected to the consumer’s country of residence. To help simplify reporting the EU introduced a single VAT return, to be filed once a quarter, through a new portal called the Mini One-Stop-Shop (MOSS).

The new regime has had the side effect of drawing in many small businesses trading at levels below their national VAT reporting thresholds into the MOSS VAT regime. In most EU countries, thresholds are €20,000 per annum or lower – nil in Spain. But the UK’s high threshold of £82,000 has meant many micro businesses, previously unregistered for VAT, now have to register with MOSS and charge VAT across the EU. Compliance costs alone can be above £1,000 for what is, in most cases, declaring very small amounts of foreign VAT.