According to the EU, digital businesses include “telecommunications, broadcasting and electronically supplied services.”
It’s not surprising that there is a sweeping attitude across the UK that this new VAT regulation is harmful to small businesses. The impact of this new place of supply VAT will be felt most significantly by digital small businesses in the UK.
This recent change may impact margins for many small businesses, and you’ll need to closely evaluate your pricing strategies in 2015 as a result.
Even though it appears unlikely the rule will be reversed, after all, it was unanimously agreed as part of an EU VAT package in 2008, several national organisations, as well as grassroots efforts, are looking into the opportunity to campaign at a European level for a change. We’ll be watching with keen interest as they spread the message that this rule will deter small business digital entrepreneurs from selling into the EU.
In the meantime, here’s what you need to know for your small business.
Effective January 1, 2015, the place of supply will change from ‘where the supplier belongs’ to ‘where to customer belongs.’ This means that as a UK business supplying digital services, you may have to register and account for VAT in every EU Member State in which you have a B2C customer.
It’s also important to understand that the place of belonging of your small business is in the UK if services are supplied from the UK, being from a head office or fixed establishment (including a residence) in the country.
You need to charge VAT to any client or buyer of services who is located outside of the UK but within the EU at the VAT rates in their country.
For example, if a German customer downloads an app on his mobile device from your UK-based business, according to the new laws in place you must charge the customer German VAT.
As such, if your place of belonging is in the UK and your customer is in another EU country, you will likely need to register for VAT in that country.
If you are concerned you may be impacted by these new rules, consider seeking professional advice. We can help you establish in which countries you may be required to register for a VAT license, assist you with registration and other VAT compliance requirements, and implement streamlined invoicing and collections processes so you can more efficiently run your small business.
Photo Credit: Tim Dorr