Does a Software Company Based in the Us Need to Charge Eucustomers Vat on Its Downloadable Products? Updated FREE

Does a Software Company Based in the Us Need to Charge Eucustomers Vat on Its Downloadable Products?

Hey, you! Are you charging your EU customers VAT? What near that auction yesterday -- was Eu digital tax added? Was it at the correct rate? Was the heir-apparent a business or an finish-consumer? How are you lot storing your invoices?

If you don't know how to respond these questions, this guide is for you.

Every visitor selling digital appurtenances to a client in the EU needs to be on their game when it comes to VAT rules. It doesn't matter if your business is actually in the European union or not.

That'southward because if your customer lives in one of the 28 member states of the European Union, you're on the hook for Value-Added Tax. You lot must charge VAT during the auction, collect it from the customer, and then later file and pay it to the government. Forget to charge your customer for VAT? Really deplorable, but so you lot'll have to pay it from your ain pocket.

Let's make sure you avoid that unpleasant surprise and any other defoliation in the Eu VAT process. Staying compliant with Eu VAT can really be quite simple, as long as you have the right information.

What is EU VAT?

VAT is Value-Added Tax, a general consumption tax on a good or service. It is practical to every auction made in the EU. "Consumption tax" means that the taxation is paid by the consumer, not by the business organisation who makes the sale. That'southward why yous, every bit a business possessor, need to know when to charge your customers for VAT!

As for how much to charge your VAT, this depends. In that location is no universal Eu VAT rate for digital appurtenances. Instead, the rates vary from 17-27% across all the countries. If you're curious about specific national rates, all of those are listed later on in this guide.

What is a digital proficient?

Can your product be picked upwards, carried, and put in a box to ship somewhere? If yes, and then y'all should actually be reading this article on distance selling in the EU. If no, keep reading!

The Eu VAT rules we're about to explain but apply to digital goods and services. They do non utilize to physical products, which have their ain carve up rules involving cross-border customs and taxes.

So the start question to answer is: what'southward considered a digital skilful, anyway?

A digital expert is any product that's stored, delivered, and used in an electronic format. These are products that the customer receives via email, by downloading them from the Internet, or through logging into a website.

That definition is pretty broad, merely information technology'due south supposed to exist. At the rate that engineering science develops these days, there's no point in using more than specific or precise linguistic communication, because a new, totally unforeseen production could exist on the marketplace in a thing of weeks. If information technology savage outside of a limited definition of "digital adept," then figuring out how to regulate and tax it would be another nightmare. So, we stick with the broad definition.

That said, the European Commission does have 4 criteria that will certify whether something is a digital skillful. Drumroll, please:

• It is not a physical, tangible good.
• It'south substantially based on IT. The offering could not exist without technology.
• Information technology's provided via the Internet or an electronic network.
• It'southward fully automatic or involves minimal human intervention.

Those four criteria are specific enough to ensure only digital products are included, only loose enough to permit for plenty of innovation.

Some common digital appurtenances on the market today include:

• Downloadable and online games.
• E-books, images, movies, and videos, whether buying a copy off Amazon or using a service like Netflix.
• Downloadable and streaming music, whether buying an MP3 or using a service like SoundCloud or Spotify.
• Deject-calculating software and Software-as-a-Service (SaaS), such equally Quaderno ;)
• Websites, site hosting services, and cyberspace service providers.

Heads upward: yous might also hear digital goods referred to as "digital services," "eastward-goods," or "e-services." All of these terms refer to the same thing.

When should you accuse EU VAT?

Information technology's important to know when to charge VAT considering… y'all don't always have to charge VAT. You need to consider it with every sale, for sure, only you don't need to collect information technology from the client every fourth dimension.

The question of charging and collecting Eu VAT comes down to two factors:

• Where your customer is located
• Whether the transaction is B2B or B2C

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If yous're a European business, you ever charge VAT in your home country. Cypher else matters. Y'all charge VAT on every auction of digital goods.

But when selling elsewhere in the EU, in that location are differences in B2B and B2C.

In B2B you don't need to accuse VAT; in that location is a contrary-charge method wherein the heir-apparent pays VAT to their own government. This saves you problem, as you lot don't have to file a separate taxation return in each country where yous brand a sale. Yous just need to receive a valid VAT number from the buyer, which you can validate with the VIES service from the European Commission. A full caption of the reverse-charge machinery is below!

In B2C you charge VAT to all customers. But the rate of VAT you charge depends on how much you're selling within the European union. If your business stays beneath €ten,000 in cross-border sales of digital goods per yr, throughout the EU, then you tin charge the VAT rate of your domicile state on all those cross-border sales. Once y'all pass the €ten,000 annual sales threshold, you must accuse the VAT rate of your client'due south country.

For non-European businesses, simple rules apply. In B2B y'all should reverse-charge VAT. In B2C transactions, ever accuse the VAT of the customer's land.

How to comply with EU VAT on digital services: 5 easy steps

As complicated as Eu VAT sounds, the whole procedure can actually exist understood in five clear steps, from beginning to cease.

1. Register your business for a VAT number
2. Verify who your client is and where they are
3. Charge VAT on transactions, when y'all need to
4. Keep detailed invoices and records
5. Submit VAT returns every quarter

Without further ado, let'south swoop deeper into each one.

1) Getting Started: Register your company for European union VAT.

First things first! Your business has to be registered in the VAT system to legally sell any digital goods within the Eu. Depending on the state where you lot register, this could be a 1-footstep or two-stride process.

Register with a tax authority in the European union

If your business is in the EU, merely annals for VAT in your habitation state!

If you run a business outside of the Eu, yous tin can choose whatsoever EU country to host your tax registration. You must sign up with that land's 1-Terminate Store (OSS), a handy scheme that we will explain in full later on on.

Don't know which country to pick? Well, you accept 28 to choose from. Hither are some tips for choosing the correct European union base of operations for your VAT processes.

• A common linguistic communication. Do yous speak any of the languages within the Eu? If so, go ahead and annals in that state, so you can easily understand all tax documentation, guidelines, and processes.
• If yous're looking for an English-speaking base, Republic of ireland is your best bet. But some other EU countries also offer their revenue enhancement process in English, like Spain for example.
• A well-functioning website. By police force, every EU member state must offer an online portal for European union VAT OSS. Merely to exist honest, some countries are more than on top of it than others. Subsequently on in this guide, you'll detect the links to each national OSS page, and yous tin decide for yourself!

Receive a VAT number

It's important to know the divergence between a local revenue enhancement number and a VAT number. A local revenue enhancement number only permits transactions locally, within that one state. A VAT number allows sales across borders, to other EU countries.

Some countries will automatically result your business a VAT number when you register; others will just give you a local tax number at beginning, and crave you go through an extra pace for VAT.

For further insight, check out our article on how to register for EU VAT every bit a foreign business organization.

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2) Acquiring a Customer: Verify your customer and their location.

Attention, please! This step is super important to staying EU VAT compliant, both during and later the sale. It dictates everything near charging digital taxes (whether or non yous add information technology, how much you add). Plus it provides you with necessary information for your tax records.

When you acquire a new customer in the Eu, you lot need to answer two questions.

Is the customer a business or an individual person?

Yous must make up one's mind whether the customer is a swain business or an terminate consumer. This is very important, because it determines whether or not y'all charge VAT at all.

• Yous should always ask the customer for their VAT registration number. Every business must have a VAT number. If the customer doesn't have ane, you tin assume it's a B2C sale.
• If the client is a business (B2B), collect their VAT registration number and ostend that the business is valid. Why? Considering, sorry to say, some customers might pretend they are a business concern just to avoid paying the tax! And so the all-time practice is to double-check their number with this validation tool from the European Commission.

Where is the customer located?

Confirm the customer's location. This determines how much VAT you charge. If you accuse them too little, you'll exist on the hook after for that missing money! Tax season can be stressful already; you lot don't want any surprise costs.

Yous must collect two pieces of bear witness that confirm the location. This show could exist:

• The billing address
• Location of the customer's bank
• Country which issued the credit card
• The IP address location of the buyer'south device
• Country of the SIM carte du jour (in cases where the buy was made on a mobile device)

* If y'all're a European business organisation that sells below €100,000 in cross-border sales of digital appurtenances per year, throughout the EU, then you simply demand to collect one piece of customer location testify. But information technology must be a piece of evidence gathered from a third political party, such as the bank or IP accost, and not from the customer directly.

Keep this location bear witness on file for ten years. Ten years?! Yep. ¯\_(ツ)_/¯ We don't make the rules, we merely tell you about them.

But seriously, these records are necessary to bear witness you are revenue enhancement compliant. And then the best practice is to keep digital files, either in deject-based storage or directly in your accounting/tax software, if you use one.

iii) Point of Sale: Charge VAT if you demand to.

Here'due south a quick recap of the section above titled, "When should you lot accuse VAT?"

If you're B2C, add VAT to every EU auction. If you're a European business organisation that sells less than €10,000 per year in the EU, add your dwelling house country'due south VAT charge per unit. If you sell more that, add the VAT rate of the client'due south country. If yous're a non-European business organisation selling B2C, you lot should always add the rate of your customer's state. Those rates are listed in the next section!

If you lot're B2B, add VAT to sales in your home country. Merely if the buyer is elsewhere in the EU and has a valid VAT number, you don't demand to add tax. The reverse-charge machinery was created to simplify things for y'all. It's the heir-apparent's responsibleness to handle VAT on the transaction

4) After the Auction: Provide (and go on!) detailed taxation invoices.

Information technology wouldn't be taxes if it didn't require more dull tape-keeping… So, here we have the VAT invoice! It's a crucial function of staying VAT compliant, and also volition assistance you stay organized when the time comes to file your tax returns.

Every sale you brand in the Eu must have a VAT invoice to accompany information technology. Even those B2B sales where you don't charge any tax -- they need special VAT invoices, too.

What's a VAT invoice? It'south a supercharged invoice that must include the following information:

• Your business' name and address
• Your business' VAT number (if you have one)
• Invoice appointment
• Invoice sequencing number
• Buyer'south proper name and address
• Buyer'due south VAT number. If you're using the opposite charge mechanism, include the text "EU VAT reverse charged"
• Charge per unit of VAT applied
• Amount of VAT added
• Concluding amount after VAT is added

Wow, that'southward a lot of stuff to include on what's substantially just a sales receipt. Here's an example of how to construction all the data and so that it's not only legible, but as well pretty good-looking:

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Go on each invoice on record for v years. Like keeping the location evidence, this is role of staying tax compliant. These records must exist electronically available at the request of any official EU institution. Then the easiest and nearly efficient way to store invoices would exist equally digital files, such every bit PDFs, just in instance anyone comes knocking.

5) Reporting Taxes: Submit VAT returns every quarter.

This last pace is actually pretty straightforward, thank you to the One-Stop Shop.

You can file your EU VAT returns online, with the OSS where you're registered. The website will tell yous what information to enter for each country where you made a sale, and the OSS system volition summate how much VAT you have to pay.

From at that place you lot simply pay the entire bill to your OSS, which will then pass along the VAT to the diverse other European union countries on your behalf. It's a one-and-washed procedure, even if yous've sold to customers in 20 unlike countries. Cool, correct?

To become an even better sense of the procedure, y'all can read our quick guide on how to file VAT returns for an Irish OSS.

On the other hand, if you're a European business that sells less than €10,000 per year in the EU, so you can just file your VAT returns with your home country. You lot don't need to use the OSS scheme.

As for when to file your EU VAT returns, you do it at the cease of each quarter. From the end of the quarter, yous take 20 days to file and pay any you owe. And then the VAT return deadlines are every bit follows:

• 20 April, for the showtime quarter ending 31 March
• 20 July, for the second quarter ending 30 June
• 20 October, for the third quarter ending xxx September
• 20 January, for the quaternary quarter catastrophe 31 December

If you want more than detailed advice on filing VAT (and to brand sure y'all do it right!), take a look at our list of nine common VAT-filing mistakes and how to avoid them.

What are the Eu VAT digital tax rates past state?

Check out the tabular array below to see the current EU VAT rate in each country:

How exactly does the "contrary charge" machinery work?

As a seller, y'all may exist curious why yous don't demand to charge VAT to whatever EU businesses. Perchance the opposite-charge mechanism sounds too good to be true. Well, here's a quick explanation of how it works!

The reverse-charge method is designed and so that the buyer must report VAT on their own business purchases, effectively cut you lot out as the revenue enhancement middleman. Information technology's really quite logical. In a typical process, a B2B customer would pay you tax on your business production, and you would pay the tax frontwards to the advisable tax authority. Later on the customer would reclaim that aforementioned amount as a revenue enhancement break and go reimbursed. The money would go in a circumvolve from buyer, to you, to the tax authority, then dorsum with the buyer.

And then why non make it ane smooth pace? Why not allow the customer but keep the coin in their bank account, and file the appropriate revenue enhancement paperwork all at once?

Thus the reverse-charge machinery was born! This is great for you, because information technology ways you don't demand to annals for taxes in every European union country where you have a business buyer.

For a more in-depth caption, read on well-nigh how the reverse-charge mechanism works effectually the world.

How exactly does the One-Finish Shop (OSS) work?

Disclaimer: If you run an Eu business that stays below €10,000 in cross-edge EU sales of digital goods per twelvemonth, then you do non demand to use VAT OSS. Your tax scheme is simple. You register in your home state, yous charge your local revenue enhancement rate to all customers, and you file returns with your home country. Voilà.

The One-Stop Shop (OSS) debuted in 2015 to simplify returns for digital taxes, and then that you don't take to annals for VAT in every European union country where y'all accept a customer.

In your home state (or if yous are a non-EU business organisation, in the Eu country of your choice), you lot annals for a OSS with the local tax authority. Each country has their own process for registration, so check with them for more than specific instructions.

From in that location, this is how the taxes work each year:

• Y'all submit 1 unmarried VAT return to your OSS. You do this online.
• The OSS calculates how much coin you owe in taxes.
• Then your OSS distributes VAT appropriately among the other EU states and their local OSS.

It'due south a surprisingly uncomplicated process for the usually complex world of digital taxes!

Don't desire to go the OSS route?

That's okay, it's not mandatory. But the alternative might be quite a hassle!

You must annals for European union VAT in each state where yous take a client. Then you must proceed records according to local policies and file separate tax returns based on each country's private deadlines.

Clearly, if you lot sell over €10,000 per year to a multi-national client base of operations, so forgoing OSS could add a lot of work on your plate. Here are some pros and cons between using OSS and doing local VAT registration instead:

FAQ about VAT

I sell digital goods. Can I exist exempt of EU VAT?

To date, in that location are no exemptions from these digital taxes. Everybody has to pay up! The but exemption to European union VAT digital taxes is for European businesses that stay below €x,000 in cross-edge EU of digital goods per year. These businesses are exempt from using the VAT OSS registration and filing scheme, but yet must collect taxes on their sales.

I sell physical appurtenances. Practice I have to pay EU VAT?

Nope. These guidelines do not utilize to physical products, just there are other VAT rules for your business. Check out our guide to altitude selling in the Eu and how to practise it correct. Or read more than about how to handle sales tax for physical products around the earth.

Tin can I withal operate my business even if I don't comply with Eu VAT rules?

Any business that provides due east-services or sells digital goods to Eu customers must register for VAT and comply. If you don't register for VAT and continue operating your business concern, yous may have to pay years of back-taxes plus a fine for non-compliance.

My business is not based in the EU. Do I have to pay this VAT?

Aye, you must pay information technology on whatsoever B2C transactions, or transactions where your buyer does not accept a valid VAT number. For specific advice, read our commodity on how to handle VAT as a non-Eu business.

I'grand selling my products or services through a market place. Do I have to comply with these VAT rules?

Some marketplaces will take intendance of VAT for you:

• Amazon Kindle Direct Publishing
• Bandcamp
• Envato

But not all marketplaces take on this responsibility. Double bank check what the policy is with your marketplace. Otherwise you might unknowingly fail to comply with VAT and end up in a gummy situation.

Farther Resources

We take studied, synthesized and distilled all of the current European union VAT regulations, and put them hither in this guide so they are easy to read and simple to empathize. If you'd similar to read more from the ultimate authority, here are some helpful sites from the official Eu Tax and Customs Union:

• General information on VAT and current guidelines
• VAT number validation tool
• Very technical, complicated explanation of where and when to tax your customers
  

* At Quaderno we love providing helpful information and best practices about taxes, but nosotros are not certified tax advisors. For farther help, or if y'all are ever in doubt, please consult a professional person tax advisor or the Tax Bureau.

Does a Software Company Based in the Us Need to Charge Eucustomers Vat on Its Downloadable Products?

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Source: https://www.quaderno.io/digital-tax-guides/eu-vat-guide

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