VAT on e-services: status and location counts

When the new rules concerning VAT on e-services provided in the EU come into force from 1 January 2015, suppliers of such services will need to first establish the status of their customers and then determine their location.

The new rules will change the way that EU-based suppliers of e-services, such as music downloads and e-books,
charge VAT on those services when supplied to final consumers. From 1 January 2015, VAT must be accounted for according to the location of the customer, rather than the location of the supplier. This will bring the treatment in line with that of business-to-business supplies of e-services.

However, determining the status of the customer – whether final consumer or business – will still be important. “This determines who accounts for the VAT,” explains Moore Stephens senior manager Shane Risdell. “If the customer is an EU business, the customer will (as now) account for the VAT in their country under the reverse charge provisions.” 

So how should suppliers determine the status of their customers? “The best evidence of business status is a VAT registration number, which should be verified using the VIES system,” Shane says. “If that can’t be provided for any reason, other commercial documents, such as letterheads or contracts, may be sufficient but the requirements in the customer’s EU Member State will need to be checked.” The new rules do give some leeway in that they allow suppliers to treat customers as a final consumer if no VAT registration number is provided by them to the supplier. Note too that organisations not in business, such as some public authorities, are treated in the same way as final consumers.

Having established the status of the customer where providing services to final consumers (private consumers or non-business entities), the next step is to determine their location. This will determine in which country the supplier needs to account for VAT.

Businesses need to ensure that they have sufficient systems in place prior to the 2015 changes, to correctly identify the status and location of their customers. If you require any assistance in this respect please contact a member of the VAT team.


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