VAT Update - Planned changes for VAT on
Contributed by Fiducenter (Cyprus) Ltd
20 November, 2013
Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]
With effect from 1 January 2015, the way in which VAT will be charged on electronic, broadcasting and telecommunication services will change considerably.
Let’s consider that ‘Company A’ is a company engaged in the selling of music downloads online; the present VAT situation is as below:
If ‘Company A’ sells downloads to a business customer (whom is a VAT-registered person) outside of the country in which ‘Company A’ is resident, or to a customer outside of the EU, then VAT will not be charged in the country of residence of ‘Company A’.
Because under the business-to-business rule (B2B), effective since 1st January 2010, the place of supply is considered to be the place where the customer is located and thus the charge is avoided by ‘Company A’.
How will the VAT be recorded?
- If the customer is an EU based customer, they are obliged to record the VAT under the ‘reverse charge mechanism’ accordingly.
- If the customer is a non-EU customer, electronic services are considered within the list of services whereby the place of supply is dependent on where the customer is based.
- If ‘Company A’ sells downloads to any customer in the country in which it is resident, or to a non-business customer within another EU country, VAT will be charged in the country of residence of ‘Company A’ at the standard rate.
The charge of VAT to non-business customers within the EU is based upon the general business-to-consumer rule (B2C), effective 1st January 2010. The main consideration in this instance is where the supplier is located.
So, what are the changes to come into effect from 1st January 2015?
The main change is that such intra-EU B2C supplies (electronic, broadcasting and telecommunication services) will be taxed in the EU member state where the customer is located.
For ‘Company A’ any sales made from 1st January 2015 will be liable to VAT in the customer’s country. Thus if ‘Company A’ is registered in the UK and sells to a customer in Cyprus, the customer will be charged 18% Cyprus VAT by ‘Company A’ and this will need to be declared to the Cypriot VAT Authorities accordingly. The income received by ‘Company A’ will be outside the scope of UK VAT and the place of supply is Cyprus.
In the above example, the new rules mean that ‘Company A’ will theoretically need to register for VAT in every EU country to which it makes B2C sales. However, fortunately such a scenario can be avoided by utilising a Mini One Stop Shop (MOSS) scheme that will be launched at the same time (1st January 2015).
MOSS is a computer system that will enable a business to register for VAT in its country of residence only and allow accounting for VAT in other EU countries using a single online return.
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