VAT within Member States
The EU’s VAT system is semi-harmonized. While the guidelines are set out at EU level, the implementation of VAT policy is the prerogative of Member States. The EU VAT Directive allows Member States to apply a minimum 15 percent VAT rate. However, they may apply reduced rates for specific goods and services or temporary derogations. Therefore, the examination of VAT rates by Member State is strongly recommended. These and other rules are laid out in the VAT Directive.
The EU applies Value Added Tax (VAT) to sales by non-EU based companies of Electronically Supplied Services (ESS) to EU-based non-business customers. U.S. companies that are covered by the rule must collect and submit VAT to EU tax authorities. From 1 January 2015, all supplies of telecommunications, broadcasting and electronic services are taxable at the place where the customer resides. In the case of businesses this means either the country where it is registered or the country where it has fixed premises receiving the service. In the case of consumers, it is where they are registered, have their permanent address, or usually live.
As part of the legislative changes of 2015, the Commission launched the Mini One Stop Shop (MOSS) scheme, the use of which is optional. It is meant to facilitate the sales of ESS from taxable to non-taxable persons (B2C) located in Member States in which the sellers do not have an establishment to account for the VAT. In 2021, this service will be extended to cover online sales of goods and services other than ESS. For more information please check the official guide on MOSS issued by the European Commission.
This (optional) plan allows taxable persons (sellers) to avoid registering in each Member State of consumption. A taxable person who is registered for the Mini One Stop Shop in a Member State (the Member State of Identification) can electronically submit quarterly Mini One Stop Shop VAT returns detailing supplies of ESS or other to non-taxable persons in other Member States (the Member State(s) of consumption), along with the VAT due. On February 12, 2020 the EU adopted Commission Implementing Regulation (EU) 2020/194 concerning the VAT on e-commerce. The regulation provides the details for the registration in the VAT One Stop Shop, including the Import One Stop Shop, and for the VAT One Stop Shop return.
In addition, in November 2019, the Council adopted new detailed measures that will pave the way for a smooth transition to new VAT rules for e-Commerce, such as:
- Council Directive (EU) 2019/1995 amending Directive 2006/112/EC regarding provisions relating to distance sales of goods and certain domestic supplies of goods.
- Council Implementing Regulation (EU) 2019/2026 amending Implementing Regulation (EU) No 282/2011 regarding supplies of goods or services facilitated by electronic interfaces and the special schemes for taxable persons supplying services to non-taxable persons, making distance sales of goods and certain domestic supplies of goods.
On 8 May 2020, because of the practical difficulties created by the lockdown measures taken to contain the coronavirus pandemic, the Commission proposed to postpone the introduction of new e-commerce VAT rules by six months. Once adopted by the Council, the rules will apply as of July 1, 2021 instead of January 1, 2021, giving Member States and businesses enough time to prepare.
Further information relating to VAT on ESS: