VAT on electronic services in EU. MOSS Scheme
What is Electronic Service?
Four years ago, the European Union has adopted changes to VAT place of supplies rules in relation to electronic supplies, including telecommunication and broadcasting.
There are three types of electronic services:
- Telecommunication services used for the transmission and reception of signals through wires, optical or electromagnetic systems. This can be the services of a mobile operator, fax, telegraph, as well as access to the Internet, i.e. communication services. The service actually is the matter of providing ‘a connection’ to a particular system, but not the content of the data that is transmitted through this system.
- Broadcasting services deliver broadcasting audio or video materials to the public under a specific program. At the same time, the company supplying this type of service controls the material content, edits or selects the content provided, but at the same time it is not accountable for the programs’ and other content. Typical examples would be radio and television broadcasting, as well as watching programs on the Internet, if a specific program that is not dependent on the consumer such as, listening to radio programs over the Internet, broadcasts them.
- Electronic services delivered electronically, usually via the Internet or local networks. First, it grants the user an access to software programs and services provided automatically based on the entered data. This category includes online computer games, electronic databases, and libraries.
If the service package contains ‘connection to the internet’ as a part of provision, these services are considered electronic but they are not telecommunications, as it might seem.
VAT on telecommunications, broadcasting and electronic services for EU-buyers.
Starting January 1, 2015, the changes to the rules on the place of supply of services in the EU VAT system were adopted. These apply to all taxpayers from both the European Union and from the outside that provide electronic services in the several EU countries where those are subject to value added tax (VAT) according to the tax law at the location of the buyer of this service. In other words, the tax ought to be paid to the budget of the EU country in which the corresponding product or service was consumed.
When selling electronic services to the non-tax payers, such as end-users with the EU place of registration, the provider of the services must be registered in one of the EU countries, as ‘VAT tax person’ or ‘Identified person’, in order to file a declaration to pay VAT at the consumer’s country rate on the provision of services from the country of registration.
A US company provides electronic services to end users in Germany, France and the Czech Republic. This company is required to register in three countries: Germany, France and the Czech Republic in order to file a declaration and pay VAT for services supplied.
If it is not possible to establish the exact place of consumption of the service, then the EU place, in which the provision of the service has begun, will be considered as the Member State of consumption. For example: a plane flies from the Czech Republic with a Wi-Fi services onboard, in this case the Czech Republic is the place of consumption of the service.
How can a taxpayer avoid registration in each EU state when providing electronic services in the EU states?
In order to avoid registration in each EU state, service providers have an option to join a Mini One Stop Shop (hereinafter MOSS). The company can designate one “member state of identification” (MSI), which will become its “single place of business” in the MOSS program. From this MSI the company can file VAT returns and pay VAT accrued in all EU countries of service consumption via secure communications network.
Mini One Stop Shop (MOSS) Scheme.
The MOSS scheme is valid from January 1, 2015. Registration for this system is voluntary.
In the Czech Republic, the South-Moravian Region Tax Office manages the MOSS maintenance and payments. Registration is available exclusively in electronic format at the ‘daňovém portále Finanční správy ČR’.
The main idea of MOSS is to simplify the payment of VAT for taxpayers when they provide electronic services to end consumers (B2C format for personal use only) with an EU place of residence:
- An EU taxpayer or non-EU tax person that delivers electronic services to different EU countries has to go through a process of registration in the MOSS.
Registration for MOSS occurs via the electronic portal of the EU country that a company have selected as a MSI or “single place of business”.
The registration will take effect from the first day of the calendar quarter followed the date when the taxable person informs the Member State of identification that it wishes to start using the MOSS scheme.
The VAT payer number for existing taxpayers from EU countries remains national, but for non-Union taxpayers the registration state will issue a new VAT number.
- VAT returns are submitted in the country of MOSS registration (MSI)
MOSS declaration in electronic format is send through a secure web portal.
Submission period – within 20 days after each calendar quarter end.
If no services were provided to any of the Member State of Consumption for a taxable period, a ‘nil return’ is submitted.
If the ‘nil return’ declaration is submitted for 8 consecutive quarters, the taxable person is deregistered.
If the VAT declaration is not filed, fines and penalties according to the national rules of the Member State of consumption will apply.
- The country of MOSS registration (identification) calculates and pays VAT according to the rates of the countries of the consumers of services.
The payment has to be done through wire transfer to the bank account of the Tax Office of the South Moravian Region, which is denominated at the Czech National Bank in Euro currency.
The Member State of identification then redistributes VAT amounts among EU Member States on its own.
Example for registered in the EU or with a representative office in the EU taxpayers:
A Czech company or a representative office in the Czech Republic delivers electronic services to individuals with a place of residence in France. The registration MOSS in the Czech Republic. Submission of declarations and payment of VAT in the Czech Republic. The French VAT rate applies. The Czech Tax Office redirects information and tax paid to France.
If a company has several representative offices in different EU countries, it can choose one out of these countries to be its Member State of identification for next three years. However, there should be no registration nor representation in the Member State of consumption.
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