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EU rejects 2015 digital services VAT threshold

  • Jan 22, 2015 | Richard Asquith

EU rejects 2015 digital services VAT threshold

The European Commission has ruled out the introduction of an EU VAT registration threshold (de minimis) for cross border sales of digital and electronic services. The ruling came as a response to recent UK MEPs’ requests for a digital VAT threshold.

UK digital micro-businesses face 2015 EU VAT burden

Micro-businesses providing electronic services to consumers in the EU are facing an obligation to register for VAT for the first time because of the 2015 EU VAT digital services changes. This requires such providers to charge the VAT rate of their consumers’ country of residency for the first time – previously providers just charged the VAT rate of the country they were based in.

To report and pay the foreign VAT under the new rules, providers now have to register on a new web Mini One-Stop-Shop portal. However, they must already be VAT-registered in their home country. Since the UK has a relatively high VAT registration threshold, £81,000 per annum, this will require many micro-businesses to register for the first time and report VAT each quarter.

The UK tax authorities, HMRC, did make the concession of not requiring such businesses to also start charging UK VAT on their UK sales. In addition, HMRC also permitted UK providers to ignore until 30 June the complex new rules on tracking customers’ location.

But this has still left a considerable VAT reporting burden on the small enterprises.

Pierre Moscovi rules out e-services VAT threshold

This month, a number of MEPs made a request to the European Commission to consider the impact this was having on micro-businesses.  They suggested digital services should have an e-commerce EU VAT registration threshold instead of having to charge VAT on the first sale in each country.

However, the European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovi, dampened such calls on 20th January 2015:

"The idea of having a minimum threshold was discussed in Council at the time these rules were negotiated but this was firmly rejected by member states. (UK) Micro-businesses can still enjoy the benefit of their VAT exemption threshold for domestic supplies, and this is the case in the United Kingdom where businesses with turnover below the threshold of £81,000 can still enjoy the VAT exemption benefit for their domestic supplies."

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.