Sander Adamson from Ernst & Young has wrote a short overview of upcoming changes in e-services taxation. I’ve asked him to write as non layer style as possible, so the post should be easy to read.

Overview of the changes

As of 1 January 2015 major value-added tax (VAT) change impacts companies providing electronic services to natural persons or companies not registered for VAT within the European Union (EU).

It is important to note that the change does not influence B2B transactions with electronic services and transactions with goods.

What happens on the 1st of January 2015? When providing electronic services to non-taxable persons, the place of supply shall be the state where the recipient of the service is established or resides. As the place of supply is in the state where the consumer is established or resides, the supplier is obligated to tax the services according to the VAT rules of the state where the consumer is established or resides.

What does this mean for the suppliers? This means that the supplier should determine in which state their consumer is situated. Suppliers should review their customer identification programs and analyze whether their systems are able to determine the location of customers according to the new rules.

After the companies have determined their customers’ location, it is also important that they add proper VAT rate to the services. They should use the VAT rate of the Member State where the consumer is established. You can find the VAT rates applicable in different EU Member States below.

After these changes companies should not only develop their services but also put a lot of effort into client identification procedures to avoid misunderstandings with the tax authorities in different Member Sates.

Obligations that arises for the suppliers

There are two possibilities for making the necessary payments to the state tax authorities of the consumer’s location.

The first possibility is that the supplier shall register as a VAT liable person in the Member States where the consumer is established or resides. However, this would spring an obligation for companies providing services all over the EU to be registered in all 28 Member States. That solution would be very burdensome for the companies, as registration procedures and keeping accountants in all Member States who would be familiar with the local tax system require additional funding.

The other possibility is to apply the mini one-stop shop (MOSS) simplification. The MOSS simplification means that companies have to submit one declaration in their country of establishment and declare all the supplies to consumers in another Member States on the MOSS declaration. Despite the fact that the MOSS declaration is submitted in the Member State of establishment, the supplies to consumers should still be taxed with the VAT rate of the state where the consumer is established or situated. Payable VAT shall be transferred to the accounts of the tax authorities of the suppliers’ establishment, who then distribute the declared amounts to the respective tax authorities in other Member States.

As seen, changes place a lot of administrative burden on companies providing electronic services to consumers.

Should you have any questions EY is glad to assist you.

Contact: Sander Adamson

e-mail: Sander.Adamson@ee.ey.com

phone: +372 6 114 539