An update and the effects of Brexit
In the first part of this series on the VAT MOSS scheme for digital services we provided a background on this scheme and considerations for applying. In this second part we provide you with a recent update and describe how Brexit will affect the scheme. Our third and final part will focus on the future and what comes next.
What has recently changed?
As part of a grander scheme to level the playing field for eCommerce businesses, the European Union (EU) have introduced new rules which will come into force into two stages. The first stage started on January 1, 2019 and aims to simplify the existing VAT MOSS scheme. The second stage, scheduled for January 1, 2021 aims to extend the current VAT MOSS scheme to other services and goods. This interesting second part will be further described in our third and final part of these VAT MOSS specific articles.
The simplifications effective from January 1, 2019 cover three main elements.
- It introduced a threshold of EUR 10,000 for EU established suppliers. If these suppliers stay below this threshold, they can apply VAT of the EU country in which they are established (instead of VAT of the EU country of consumption). This will avoid an additional VAT MOSS scheme filing.
- Secondly, a simplification regarding the evidence that eCommerce businesses will need for determining the location of their customers. This simplification applies if the total annual turnover from digital services supplied by EU based suppliers does not exceed EUR 100,000. In such a situation, only a single item of evidence to prove where the customer is located is sufficient (instead of two items).
- Finally, you can apply the invoicing rules of the EU country of registration.
What is the impact of Brexit?
Assuming the UK leaves the EU, this will have the same affect for both UK established eCommerce businesses applying the Union scheme as for non-EU established eCommerce businesses who registered in the UK to apply the Non-Union scheme.
In both situations, the respective eCommerce business would no longer have access to VAT MOSS via their UK HMRC online portal. Instead, they would have to once again register for VAT in one of the remaining EU countries to obtain access to a local online portal for VAT MOSS. As the UK will no longer be part of the EU post Brexit, also any UK established eCommerce businesses will need to apply for the Non-Union VAT MOSS scheme, although the principles of both systems are the same.
Unfortunately, this cannot be done until after the UK actually leaves the EU. Also as you must register for the VAT MOSS scheme before the 10th of the month following the month in which you supplied digital services, these businesses will only have a very small window of opportunity to register for Non-Union MOSS in one of the remaining EU countries.
As outlined in our earlier article in this VAT MOSS series if a business doesn’t register for Non-Union VAT MOSS in one of the remaining EU countries, then such business will create a requirement for registering in every EU country in which it supplies digital services to non-business customers.
Clearly thinking ahead is key and it is advisable to act now and consider in which EU country you want to register for Non-Union VAT MOSS.