On 1st of January 2015, the EU started applying new VAT rules for businesses operating in the fields of (1) telecommunications, (2) broadcasting, and (3) electronic services (e.g., supply of websites, software, databases, films, music, distant teaching, web-hosting). According to the new VAT rules, the services provided by such businesses will be taxed in the country where the customer belongs. Two types of activities are not covered by these changes, namely, (1) the supply of goods (including distance selling) where the electronic systems are used only to place orders and (2) the supply of services other than telecommunications, broadcasting, and electronic services.
The VAT changes were made in order to harmonize the taxation of the aforementioned services with the fundamental EU VAT principle that goods and services should be taxed in the EU Member State in which they are consumed. Moreover, in order to facilitate the compliance with the new VAT rules, a new VAT return system, Mini One Stop Shop (MOSS), was introduced. MOSS is intended to be used by suppliers of telecommunications, broadcasting, and electronic services.
What are the new VAT rules?
In order to ensure the compliance with the new VAT rules, businesses will have to identify the status of their customers and the country to which the customer belongs. A business customer (taxable person) belongs to the country where it is registered or to the country where it has fixed premises receiving the service.A consumer (non-taxable person) belongs to the country where she/he is registered or has a permanent address.The effects of the new VAT changes can be summarized as follows:
- If an EU-based business supplies services to a business based in another EU Member State, VAT is not charged. However, the customer must use the VAT reverse-charge mechanism.
- If an EU-based business supplies services to a consumer based in another EU Member State,the VAT is charged in the EU country where the consumer belongs. The VAT is not charged in the country where the supplying business is based.
- If an EU-based business supplies services to a business or a consumer based outside the EU, no EU VAT is charged.
- If a business based outside the EU supplies services to a business based in an EU Member State, EU VAT is not charged. However, the customer must use the VAT reverse-charge mechanism.
- If a business based outside the EU supplies services to a consumer based in an EU Member State, VAT is charged in the EU country where the consumer belongs.
MOSS online system
In order to simplify the fulfillment of the VAT obligations related to supplying telecommunications, broadcasting and electronic services, a special MOSS scheme started operating simultaneously with the VAT legislation amendments in 2015.
MOSS allows businesses to submit their VAT returns and to pay the applicable VAT dues to a number of EU Member States through an online system in one of the EU Member States. Therefore, businesses do not have to:(1) register for VAT purposes in numerous EU countries and (2) submit multiple VAT return declarations. The tax authorities of the EU Member State have established separate MOSS online platforms.
MOSS Registration.EU-based businesses that would like to opt for MOSS online platform have to register in the country in which they are established or have their head offices. Non-EU businesses can use the MOSS system of a Member State in which they have fixed establishments. Only a single MOSS registration per company is allowed across the entire EU.
VAT returns.The VAT returns are submitted through the MOSS every quarter. The applicable VAT charges should be paid in one installment within 20 days of the expiration of the period covered by the VAT return. The VAT payments received through the MOSS are automatically distributed to the tax authorities of the countries in which the business made supplies of telecommunications, broadcasting, or electronic services.