The new EU VAT regulations, often referred to as VAT MOSS, have caused quite a stir since their introduction on 1 January.
MOSS is an acronym of Mini One Stop Shop and has become synonymous with a new way of how VAT is applied to digital services sold online in the European Union.
Why Has It Been Introduced?
Ostensibly to plug a tax gap in the region of 177 Billion Euros. What happened before the new rules (and is still happening of course, given that compliance is so hard to enforce) is best illustrated by an example: if you were based in the UK selling a digital service or product, let’s say an e-book, you would pay VAT based on the rate of the country from which you’re supplying said e-book. So, the UK, meaning 20%. Simple right?
The new idea is that you will pay the VAT based on the location of your customer. Hence, to simplify the actual reality, if you sell said e-book to a customer in Sweden, you’d be paying VAT at their standard rate of 25%. This will effectively deal with companies like Amazon who are are VAT registered in Luxembourg primarily because of the low 15% rate.
Rather than having to go through the rigmarole of being VAT registered in all of the countries where they supply customers, businesses will normally only need to register in their home EU state and will pay their owed VAT to the Mini One Stop Shop, who will then do the complex work of divvying out the necessary VAT to the relevant countries.
Watch the above video from Crunch Accounting for full details.
Because there is no threshold for the new law, the answer is lots of people, from multinationals like the aforementioned Amazon to sole traders.
We’ve already heard complaints from many people who sell e-books, apps and plugins online. It’s not much of a surprise given that an estimated 34,000 small businesses are affected, not to mention the uncounted individuals.
Needless to say, social media and comments threads are full of people sharing their gripes about the new system, with one Jim Cockrum referring to it as the “death to small information product providers act 2015”.
You can see whether you need to comply with the new regulations by going through a 5-step checklist. Here’s a handy one from Enterprise Nation:
If you want to know whether you know your way around the new laws you can take the EU VAT quiz here.
— Juliet E McKenna (@JulietEMcKenna) January 19, 2015
Why Are People Complaining?
For the most part complaints are concerned with the lack of threshold and the data collection. Businesses will need to keep two of the following pieces of information on all their customers in order to best determine which country the purchase has come from: billing address, IP of the customer’s device, location of their bank, country code of SIM card, and the area code of their landline.
If you’re struggling with getting your head round the new regulations, contact Alexander & Co today.