EU 2015 VAT changes for American Companies

The 2015 EU VAT changes effect on American digital companies

By now most of you will be aware of the forth coming EU VAT changes for digital downloads, where VAT is now charged based on the location of the download instead of the location of supply.

For more information see our previous blog posts.
– EU 2015 VAT changes – Determining customer location
– VAT changes in the digital (download) world

However it’s not only European companies that will be effected but American ones also. This is because since 2003 rules have been in place regarding the supply of digital services by US companies to customers in the EU. These rules meant that US companies had the option to put all their VAT charges through a single administration, meaning that many companies could exploit the loophole in this by basing their European HQ in Luxembourg which has the lowest EU VAT rates. However with the new rules meaning that when making a Business to Consumer sale (B2C) the VAT is charged based on the location of the end user, many companies are going to need to adjust the way and rates in which they charge VAT. Business to Business (B2B) sales are currently excluded from this and will remain unchanged.

Companies taking advantage of the Luxembourg VAT rate is one of the reasons why this new rule has been put in place, the EU commission want to raise VAT compliance rates. The main problem with the 2003 scheme was that it allowed non-EU companies to set up base in a low-tax jurisdiction and thus declare all of their EU VAT via that EU Member State, with most of them choosing the lowest VAT countries. The new rules mean that the low rates of some EU member states are no longer relevant.

There are two ways in which a US company can choose to deal with these incoming changes:

1: The Company could register in all of the countries it currently has customers in, to do this you would need local tax law, translation issues, and currency conversion. As well as having knowledge of the tax jurisdiction.
With 28 Member states this many not be the best option for many companies, especially those supplying several countries, which is why the EU commission has introduced a second option.

2: The Mini one-stop shop (MOSS) system: Using this system a US company chooses one country in which to register and declare its VAT through. The US Company must then submit quarterly returns to this country, which is known as the member state of identification (MIS), and the MIS will then calculate and distribute the VAT to the relevant member states where B2C sales have taken place.

US digital companies without an EU headquarters are able to register in any EU member state. Whilst companies with a headquarters are best to choose that EU state. Registration for the MOSS is currently open and it’s advised companies register as quickly as possible so as to be prepared as they can be come 2015.

For more information on this subject please see.
– US Digital Companies EU VAT