EU VAT Changes 2015 - What does it mean for you?

Written by Jo Stonehouse
vat2015EU VAT regulations are about to undergo a massive overhaul from 1st January 2015. The change relates specifically to companies that sell "digital services" - web hosting, domain registrations and other such intangible e-services are included in this category. In short, if you are based in the EU and sell digital services to customers who are located in the EU, you should read on!

What's changing?

At the moment, companies in the EU charge VAT at the rate of the country they are based in. For instance, a UK based company would charge it's customers UK VAT at 20%. From January 1st 2015, for all e-services, the rate of VAT charged is determined by the location of the consumer, at the VAT rate applicable in the consumer’s member state. So if a customer is based in Ireland, the VAT collected should be at 23%, if they are in Germany, 19% and so on. A full list of VAT rates in the various EU member states is available here.

Should all EU customers be charged VAT?

No. VAT is charged to consumers only. Business to Business transactions remain unaffected by this change. However, it should be noted that the EU defines a consumer as any individual or non VAT registered business. So if you sell to an individual in another EU member state, or a business who doesn't have a valid VAT registration in their own country, VAT must be charged at the appropriate rate for their member state. If you sell to an EU business who is registered for VAT, then VAT does not need to be charged. In such cases it is necessary to validate that they are VAT registered and also display their VAT registration number on their invoice. You can validate VAT numbers of businesses in other member states using the European Commission VIES VAT Number Validation web site. If you are reselling web hosting services and use our recommended billing solution, WHMCS, you can configure it to handle VAT number validation automatically. You can additionally configure WHMCS to charge VAT in accordance with the rates of each member state.

What services are covered under this new legislation?

In high level terms digital supplies are defined below. But the list isn’t exhaustive - it’s intended to provide a good set of examples of the types of service that the legislation covers, rather than a detailed and specific list of every service covered.

Broadcasting - Includes the supply of television or radio programs to a schedule by the person that has editorial control of those programmes.

Telecommunications - Includes the service of sending or receiving signals by wire, radio, optical or other systems - and includes fixed and mobile telephony, fax and connection to the internet.

E-services - Includes video on demand, downloaded applications, software as a service (web apps), music downloads, gaming, e-books, web hosting, domain names, anti-virus software and on-line auctions.

The definitions clearly include web hosting and domain names.

How do I decide which country my customer is located in?

You must collect at least two pieces of evidence to support this. This could include, but is not limited to, their address, bank account details, phone number or IP address. You must hold this on record for 10 years.

How should the VAT collected be paid to the relevant member state?

You can either register and pay VAT at each member state directly, or more simply, most member states have created a method that you can report all VAT collected via one central portal. In the UK this is handled by the VAT Mini One Stop Shop system.

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About Kualo: Jo

About the Author

Jo Stonehouse is the Founder and Managing Director at Kualo. He loves helping businesses succeed online, and is based in London were he lives with his wife, Sali, and dog, Milo.