The new EU VAT rules, the rates and how it affects those selling digital products
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The new EU VAT rates came in to force on 1st January 2015 and apply to anyone selling digital products to people and businesses in EU countries. They also don’t set a threshold income level so even the smallest business will have to charge VAT. This particular feature has affected aspiring musicians as they now have to charge their fans VAT and pay the VAT bills to the relevant country’s exchequer:  Bandcamp Faces Exodus Over European Tax Change.

How to implement the new VAT rates

As of January 1st 2015 all EU companies that sell digital goods online should comply with the following new rules:

eu-vat-rules-back-of-a-napkin-300x300

EU VAT rules on the back of a napkin

– if the company sells to any countries in the EU, they will have to charge VAT in the country of the buyer instead of the seller.
– if the receiving party of the digital goods is a consumer, the company has to charge the VAT percentage from the country of the buyer
– if the receiving party of the digital goods is a company (with a valid VAT number) a reverse charge mechanism is in order, in understandable English this means there is a 0 percent VAT charge.
– if the receiving party of the digital goods is a company without a VAT number or has an incorrect VAT number, the VAT of the country of the buyer must be charged.
– if the company sells digital goods to companies or consumers in their own country, local VAT needs to be charged.

So, for example, if you are based in the UK and sell a digital / downloadable product to a consumer in Sweden you will need to charge VAT at the standard rate of 25%. If you sell that same product to a consumer in Italy you will need to charge their special VAT rate of 4% for digital products.

The latest VAT rates for standard and digital products

if you are based in the UK and sell a digital product to a consumer in Sweden you will need to charge VAT at the standard rate of 25%. If you sell that same product to a consumer in Italy you will need to charge their special VAT rate of 4% for digital products.

At the time of writing here are the latest standard and special VAT tax rates for digital products:

Country
Standard VAT rate
Actual VAT rate for downloads
Austria
20
20
Belgium
21
21
Bulgaria
20
20
Croatia
25
25
Cyprus
19
19
Czech
21
21
Denmark
25
25
Estonia
20
20
Finland
24
24
France
20
5.5
Germany
19
19
Greece
23
23
Hungary
27
27
Ireland
23
23
Italy
22
4
Latvia
21
21
Lithuania
21
21
Luxembourg
17
3
Malta
18
5
Netherlands
21
21
Poland
23
23
Portugal
23
23
Romania
24
24
Slovakia
20
20
Slovenia
22
22
Spain
21
21
Sweden
25
25
UK
20
20

The UK government has created a HM Revenue and Customs (HMRC) VAT Mini One Stop Shop (VAT MOSS) scheme to help small traders submit quarterly VAT returns and distribute payments to the relevant exchequers.

Further reading

Visit these websites for more information:

VAT rates in member states

2015 European Union EU VAT rates

All you need to know about the 2015 EU VAT changes and how we implemented them at TNW

VAT: supplying digital services to private consumers

Register for and use the VAT Mini One Stop Shop