If you’re a merchant who is VAT-registered in the EU or who makes any sales of digital services into non-domestic EU countries, then these new VAT rules affect you and they come into play on January 1st 2015.
These changes are pretty radical and will impact a lot of sellers of digital content particularly as their sales grow, so we thought we’d try and give a brief overview of the coming changes.
Who and what does this apply to?
The new rules apply to sales of digital content including apps, games, software and e-books (defined as “electronic services” by the legislation).
If you're VAT-registered in the EU (or should be) then you fall into the scope of these new regulations, and need to be compliant.
When do the changes apply?
The changes apply on all sales of electronic services into Europe from January 1st 2015.
What are the changes in a nutshell?
Current sales by VAT-registered companies are taxed at the rate of the vendor’s country. Under the new rules, the rate will switch to that of the customer’s country.
As an example, a French developer sells apps to consumers in Germany, Spain, Portugal and Sweden. Under the old rules all of these sales would be taxed at the French VAT rate of 20%. Under the new rules these will be taxed at 19%, 21%, 23.25% and 25% respectively.
There are also changes to the filing regime - instead of filing a single return in the country in which they are VAT-registered, vendors will need to submit an additional return which aggregates all sales made in other EU countries to avoid submitting returns in each country in which they sell. This is called the mini one-stop shop (MOSS) simplification regime.
What happens if a vendor sells physical goods as well as electronic services?
The new rules only apply to electronic services, broadcasting and telecommunications. Sales of physical goods will be taxed at the place of supply as before. This could mean that a vendor will have to apply 2 different tax rates to 2 different elements of a sale!
Why has this come about?
These rules were put in place to stop the likes of Apple, Amazon and Microsoft from selling digital content out of Luxembourg which has the lowest VAT rate in the EU. This meant that other EU governments felt that they were not getting their fair share of tax revenues.
What can I do about it?
If you are selling through Paddle.com then there is no need for action - we handle the VAT on your sales and will ensure compliance with the new rules. If not, you should start talking to an accountant soon as time is running out…
This blog was fascinating! Where can I read more?
If you love VAT as much as we do, then feel free to browse the new rules on the EU Commission website.
Download Paddle's free VAT calculator
We've created a free VAT calculator that shows the rates applying to digital content (including apps, music, games and e-books) from 1st January 2015 in the 28 EU member states.
Go to the VAT calculator here
Learn More »