Digital services, EU VAT & B2C: A Guide for Irish Businesses

In this part two of our overall guide to selling online & VAT, we’ll look at digital (as opposed to physical goods) services. From January 2015 the EU brought new VAT rules which tried to simplify the complex task of VAT collection when selling digital services across multiple EU countries. See part one for our guide to VAT for selling physical (distance sales) and part three on B2B VAT.

Telecommunications, Broadcast & Electronic (TBE)

The EU defines digital services as: Telecommunications, Broadcast & Electronic (TBE). In general they are: not physical goods; based on computer technology; served over the internet & require very little or no human input to work.

Telecommunications: telephone and mobile phone & related services.

Broadcast: radio & TV programmes over the internet but on-demand.

Electronic: supply of digitised products & services.

MOSS VAT Returns

If your business’s TBE sales to other EU countries are less then €10,000 per annum then you add and pay Irish VAT. However above €10,000 you are liable to pay the VAT at the customer’s country of residence. You can register & pay VAT through that country’s online tax system. (Outlined in our Distance Selling Guide). A far easier option is to avail of the Mini One Stop Shop (MOSS) online. MOSS was created by the EU to simplify VAT returns for digital sellers to customers (not B2B, we’ll get on to that in the next part) in multiple countries and they hope to expand it to include Distance Selling as well.

So how does MOSS work? You will need a VAT number & a Revenue Service Online (ROS) account and you can only register in your business’s country of residence, Ireland, in our case. VAT from Irish customers must be included only in your normal VAT return and if your business has a residence in another EU country then VAT receipts must be filed though that country’s tax system.

There are two types of returns through MOSS. (1) VAT from other EU countries you sell to from your business in Ireland and (2) VAT from your businesses that reside in other EU states. VAT must be returned quarterly 1 January, 1 April, 1 July or 1 October and all returns must be in Euros even if the original receipts were in a non-Euro currency. If going through ROS you have until the 20th of each relevant month to pay. Consult with your accountant about currency rates. MOSS should have all the correct rates from the various countries prepopulated. However, it’s always worth double-checking they have the latest. MOSS is for VAT sales only. If you have any VAT on purchases from another EU country you can claim it through Revenue’s Electronic VAT Refund.

Revenue Commission Video Guides for using MOSS through ROS

The Digital Supply Chain

Knowing where VAT should be applied in the supply of digital goods can be complicated. An application (app) or software as a service (SAAS) can be sold through a third party intermediary services such as Envato or eBay. If you’re supplying your goods via one of these platforms you need to inform yourself of each company’s VAT policy. In the case of Envato, they are just a platform for selling digital goods but for VAT purposes act as a supplier and are therefore responsible for each of their digital authors’ VAT obligations using Ireland’s VAT MOSS and use the Envato VAT number on all B2C invoices. eBay insist on all the sellers having VAT IDs. Bottom line is check with your digital supplier platform  how they deal with VAT.

Place of Supply Rules

Knowing where a customer resides decides on the rate of VAT to be charged and is the obligation of the seller of the digital service. With selling remotely identifying the customer residence can be difficult. The sellers needs two pieces of non-contradictory evidence of the customer’s permanent address. These can be:

  • the billing address
  • IP address
  • location of customer’s bank

If the business has sold less €100,000 in other EU states B2C in a tax year, then only one piece of evidence is required.

Digital and Physical Goods

There are numerous cases when you could be selling both physical and digital goods at the same time, a physical copy a book and the ebook equivalent, for instance. There is, of course, nothing to stop you doing so. You just need your invoice to reflect to correct VAT rates for each product.

Digital B2C Sales to Outside of the EU

NO VAT should be charged on sales to customers residing outside the EU.

WooCommerce VAT Solutions

There are some very neat technical solutions available to ease the burden of VAT compliance on the sales of digital goods. Guilder Commerce’s preferred e-commerce platform WooCommerce has a number of excellent plugins to meet these challenges:
EU VAT Compliance Assistant for WooCommerce
WooCommerce EU VAT Assistant
Yith WooCommerce EU VAT
WooCommerce PDF Invoices & Packing Slips

They include solutions for B2B sales (VIES), physical sales & invoicing which we’ll get on to in our fourth article on WooCommerce specific solutions to the myriad EU VAT issues.

If you have any queries, additional information to add, or indeed corrections on the above article, I’d love to hear from you