On the 1 January 2015, the final VAT Package changes will come into effect and EU established suppliers of telecoms, broadcasting and electronic services will be required to change the way VAT is accounted for on B2C supplies.
What is changing?
Under current EU VAT rules, EU businesses that supply telecoms, broadcasting and electronically supplied services to private individuals are required to charge VAT at the rate of the EU country in which they are established.
However, from 1 January 2015, the place of supply for VAT purposes will shift from the country of establishment of the supplier to the country of the consumer. This means that instead of charging a single rate of VAT for sales to private individuals, businesses will have to charge VAT at the rate of the EU country in which their customer is located.
The VAT rules for business-to-business supplies will remain unchanged.
At present there can be substantial differences between the VAT rates applied to these types of services. For example, a provider of e-books established in Luxemburg can enjoy a significantly reduced VAT rate of 3% instead of to having to collect VAT at a rate of 27% in Hungary. The application of the new rules will level the playing field for EU established businesses.
The new rules also bring EU business into line with non-EU established business where the same rules have applied since 2003.
How will the change affect businesses?
The shift in collecting VAT based on where the consumer is located would normally require businesses to register and charge VAT in each country which supplies are made to consumers. However, to avoid multiple registrations, the ‘Mini One Stop Shop’ (MOSS) will allow businesses to have a single VAT registration in the Member State of establishment. VAT should be charged at the applicable rate of each country and declared via MOSS online.
In the UK, HMRC has stated MOSS registration will be possible from October 2014.
What businesses need to consider:
- Which services will be subject to the new rules? Telecoms and broadcasting services may be easier to define but there can sometimes be confusion about whether or not a service is supplied ‘electronically’.
- Which VAT rate to charge?
The VAT rates vary in each EU Member State with some opting to apply reduced rates to certain services.
At the moment businesses know which rate of VAT will be applicable and set price levels accordingly but from 2015 will have to take into consideration the different VAT rates and the impact on pricing.
- Systems and accounting changes
Businesses will have to be able to identify the location of their customer and ensure VAT is collected in the right country. Methods of identifying customers may be based on criteria such as the customer’s IP address, bank card details, country dialling codes, self-identification, etc.
- Use and enjoyment provisions
Additional considerations will have to be given to situations where ‘use and enjoyment’ rules come into force. For example, if a non-EU customer buys services but they are used and enjoyed in the EU, EU VAT may be applicable.
- Transitional rules
The transitional rules are still being discussed but businesses will have to consider when exactly the new rules will impact them as in some instances it may be before 1 January 2015.
- Repayment of VAT
VAT incurred in the EU may not be recovered via MOSS. Instead, business will have to the make an EU refund application.
How Accordance can assist
Accordance is offering free, no-obligations consultations for businesses so that they can find out if the changes will affect them.
Should the impact affect you, Accordance can assist by carrying out a review of your business and providing a tailored plan so that you can ensure you are prepared for the changes.
Who to contact
If you’d like to find out more please contact us at:
+44 (0) 1273 573950