In a little over 3 months there will be a significant change to the way VAT is charged for e-services supplied by business to consumers within the EU.
Currently VAT is charged at the rate prevailing in the location that the business is based. From 1 January 2015, the rate will depend on where the consumer is resident.
This will clearly have a major impact for tech companies supplying e-services to consumers across the EU.
The first challenge will be VAT compliance, as businesses will need to account for and pay VAT due to a number of European jurisdictions. To counteract the compliance headache, hmrc will run a simplified “mini one-stop shop” (MOSS) where they will collect tax due and distribute to the relevant country. Businesses however, will need to determine the location of the consumer and correctly account for the VAT payable.
The second challenge will be how to price their services to consumers. They can either leave their pricing unchanged and run the risk of margin erosion (EU rates range from 15% in Luxembourg to 27% in Hungary), or they will need to change their pricing systems to reflect the prevailing rate of VAT in the consumer’s country.
Businesses impacted will should already have implemented plan to deal with the legislation, but if you haven’t, or you’re just starting out, we can help you plan for the change, please get in touch.