On the 1st of January 2015, the VAT place of supply rules changed. This has huge consequences to all businesses that sell digital products to other countries within the EC. The change in law is being introduced to close a tax loophole that currently enables multinational web giants like Amazon, Google and Apple to charge lower rates of sales tax by basing operations in European countries such as Luxembourg, where rates are among the lowest in the European Union.
Consumers living in the EU must now pay VAT on digital goods at the rate applicable in their own country. This rule applies regardless of where the seller is located. That means if you are selling digital goods to customers in the EU, you should charge VAT based on your customers’ locations. It’s your responsibility to make sure that you comply fully with tax laws wherever your business operates. It’s very important that you familiarize yourself with EU VAT rules as they apply to you.
What are digital goods?
Digital goods are defined in the legislation as broadcasting, telecommunications, and services that are electronically supplied instead of shipped. Gift cards sent online are not included in the definition.
For example, according to the United Kingdom HM Revenue & Customs, the following are covered by the new rules:
- PDF documents automatically e-mailed to customers
- stock photographs available for automatic download
- online courses with downloadable videos (but not live webinars)
- downloadable software
- electronic/online media such as music, video, and eBooks
- VoIP credits.
You must check with your local tax authority to determine if your business falls under these new rules.
Registering for VAT
You must register for VAT in one of the following ways:
- Register for VAT in every EU country where you do business.
- Register for Mini One-Stop-Shop (MOSS) in the EU country where you reside.
- Your local tax authority (for example, HM Revenue & Customs in the UK) can provide you with more details on how to register for MOSS.
What is Taxamo?
Taxamo is a 3rd party integration that provides a real-time Software as a Service (SaaS) solution for compliance with the new 2015 EU VAT rules on the sale of e-services. It is a unique end-to-end 3rd party service that integrates into Cart66 Cloud and enables digital merchants to achieve compliance with the rule changes, without impacting the existing customer journey.
What does it do?
- Applies correct EU VAT rate
- Creates a quarterly EU MOSS return
- Issues e-invoices
- Securely stores evidence for 10 years
- ECB currency conversion for EU MOSS
- Integrates seamlessly with your Cart66 Cloud account
Want to set up Taxamo for your store? Check out our help article about how to set up Taxamo with Cart66.