Based in the UK and have a ground-breaking digital product or service you want to roll out to consumers internationally? If so, here are the current rules on VAT for digital goods and services outside the UK.

In this article, we’re going to assume that your product is designed for consumers and that only consumers buy the product from you.

If you’re selling B2B within the EU, a reverse charge takes place meaning that you don’t have to charge your customer VAT. For non-EU customers, whether B2B or B2C, you also don’t have to levy VAT.

Burton Beavan caveat – different rules apply for VAT registered retailers. The information in this article is not applicable to you.

VAT for digital goods and services – which laws cover this?

If you sell digital goods into other EU countries, you have to collect and pay VAT on what you sell to EU consumers. This regime was enacted in 2003 under the EU Council Directive 2002/38/EC.

VAT for digital goods and services – what if I’m not VAT registered here in the UK?

Unfortunately, even if you only make £100 of digital sales to consumers in EU countries, you still have to account for, collect, and pay VAT.

VAT for digital goods and services – I am VAT registered so what effect does this have on me?

You have to account for VAT on UK sales at 20% and to other EU countries at each country’s individual VAT level.

It’s getting complicated already but…

VAT for digital goods and services – the VAT Mini One Stop Shop (MOSS)

If you sell or intend to sell your digital product or service in significant volumes, you can always register for VAT in each of the EU countries to which you can supply your service. Alternatively, you can use the VAT Mini One Stop Shop (MOSS) scheme.

The major advantage of the MOSS scheme is that, instead of doing a VAT return each quarter in each EU country you’ve sold into, you do one MOSS return. When HMRC receives your MOSS return and payment, it then sends the proportionate part of the VAT to the EU countries into which you’ve sold.

VAT for digital goods and services – registering for MOSS

To apply, you must have a UK VAT registration. If you don’t have one already because you’re under the threshold, click here to start your application. When applying, click “Digital Services” and choose “Supplies of Digital Services (below UK VAT threshold) under VAT MOSS arrangements” when the system asks you to select a business activity.

If you’re already registered, log in to HMRC Online Services to register for Union VAT MOSS. If you have any overseas branches located within the EU, you’ll need to let HMRC know when you’re applying.

You need to register for VAT MOSS by the tenth date of the month following your first digital sale. For example, if you make a sale on the 4th March, you must register by 10th April. When you’ve done this, your VAT MOSS registration will be backdated to 4th March (when you made your first sale).

There is another type of MOSS system called Non Union VAT MOSS. This is only applicable to companies based outside the EU with no fixed premises in the EU but which supply digital services to consumers in the EU. Don’t concern yourself with this option.

VAT for digital goods and services – submissions and making payment to HMRC

There are four submission dates for MOSS statements every year, and they’re on:

• 20 April (quarter ending 31 March)
• 20 July (quarter ending 30 June)
• 20 October (quarter ending 30 September)
• 20 January (quarter ending 31 December)

For Union VAT MOSS returns, you complete your submission online or upload a completed Union VAT MOSS Return template. Remember only to include the sales of customers on it from outside the UK and those countries in which your business has a branch.

If your business turnover is under the UK VAT threshold, you also need to complete a nil UK VAT Return. If you want to reclaim VAT on business expenses or purchases, use your UK VAT return to do so, not the MOSS return.

If your business starts to turn over more than the UK VAT threshold, you’ll need to account for VAT on your UK sales via your UK VAT return.

VAT for digital goods and services – how to determine the VAT element in a VAT-inclusive price

Each country in the EU has its own individual rate of VAT.

To work out the VAT you have to retain when you make your MOSS payment, after you’ve converted the sale back into UK sterling using the ECB’s conversion rates (published on the last working day in March, June, September, and December), you need to apply the VAT fraction. Let’s look at how this works across five different EU countries…

VAT for digital goods and services – records you need to keep

When you use the VAT MOSS system, you must keep the following information for 10 years and be able to send it to HMRC electronically when asked –

• where you made the sale (that is, the member state)
• the date
• the taxable amount (including the currency used in the transaction)
• any increase or decrease of the taxable amount
• the VAT rate you applied
• the VAT due and the currency used
• the dates and amounts of payments your business received
• any payments on account you received prior to supply
• the information on the invoice
• customer names (where known)
• how you worked out where the customer was based

VAT for digital goods and services – tap Burton Beavan’s expertise

Selling abroad is exciting and given the infrastructure-light nature of digital-only businesses, you can expand into overseas countries at much lower entry rates than most other types of business.

We have a dedicated tech- and fast-growth-business team here so please get in touch with us if you’d like to talk about taking your SaaS business abroad.

Call the Burton Beavan team on 01606 333 900 or email us at hello@burtonbeavan.co.uk.