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European VAT on Digital Sales delivered from non-EU businesses

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TAXING DIGITAL SALES
15.10.2013
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How to make sure you comply with EU VAT rules when selling digital goods to EU consumers

Vat Fact

Experience shows that many clients who establish offshore companies for trading purposes, at some point decide to let go the company as they cannot understand the right way to operate it when selling their digital services to consumers based in EU.

We have been doing a research in order to understand this side of VAT rules and want to share this with you!

Why would you need this?

The European Commission welcomed the Council`s adoption of a Directive and a Regulation to amend the existing VAT legislation of 7th May, 2002. This proposal came into effect from 1st July, 2003. It is a directive which requires non-EU resident vendors to apply VAT when selling “digital goods” in the EU.

Non-EU operators are required to register for VAT purposes only when their business involves sales to final consumers (B2C). In the case of B2B supplies (where the destination principle applies without exception), tax assessment and collection obligations are simply shifted to the business customer under the reverse charge mechanism, which actually applies to all cross-border supplies of services to taxable persons. In practice, supplies are zero-rated and business customers are liable for correctly assessing and spontaneously remitting the correct amount of tax due on their acquisitions to their own tax administration through periodic returns.

In business-to-consumer supplies, reverse charging is not an option because consumers are not registered and have neither the skills to voluntarily proceed to the remittance of the tax nor any incentive to do so given that, unlike businesses, they have to bear the economic burden of the tax without any possibility of recovering it.


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