Business News

GUEST BLOG: How MOSS VAT is helping SMEs enter overseas markets

By Business & Finance
03 May 2016
Tax

By Katya Puyraud, co-founder, Euro Start Entreprises

A decline in local growth, market saturation and opportunities abroad are all common motivations when looking to new overseas markets. However, the VAT regulations introduced by the European Union have left some SMEs struggling to cope.

It’s only natural that a successful business will want to consider expansion into new markets.

In some cases, SMEs have found that ceasing to sell products to overseas customers is a more attractive proposition than adhering to the additional administration and expense required in order to comply with the current VAT regulations.

Rather than promoting trade throughout the EU, its been argued by many small business owners that the current rules are actually preventing them from expanding their overseas customer base.

Under the new rules, any company trading digital products in any of the 28 EU member states are now required to charge VAT based on the place of purchase, rather than the place of supply. The rules also apply to businesses outside the EU (for example the US) who supply digital services to consumers in the EU.

Common ‘digital services’ are defined as:

  • Broadcasting
  • Telecommunications services
  • Video on demand
  • Apps
  • Downloadable music
  • Games
  • Ebooks

MOSS VAT is viewed as the easier and more efficient method of EU VAT payments for digital B2C sales

In simple terms, if your customer is located in France, then the French VAT applies, essentially signifying an end to a solitary rate for all countries. The process is often referred to as ‘distance selling’ and the changes have been a contentious issue with many SME business owners.

The new regulations were – in part – incorporated to protect UK consumers when dealing with foreign businesses throughout the EU. Additionally, large retailers like Amazon had been criticised for taking advantage of Luxembourg’s 3% VAT rate, where UK-based retailers were required to add 20% VAT to a number of products. The change in law was supposed to provide a fairer playing field.

But the additional administration required in handling all the different VAT rates across the various member states has left many struggling to make the transition. For small businesses whose European market may only be a small percentage of their total sales, the question is whether the investment in additional accounting software is worthwhile?

For businesses who wish to continue trading within the EU, the main consequence of the changes was the requirement to register for VAT in each member state (no easy task), or, they enrolled in an EU-wide scheme known as the mini one-stop shop (MOSS) VAT.

MOSS VAT is viewed as the easier and more efficient method of EU VAT payments for digital B2C sales. Payments are submitted electronically every quarter, before HMRC send an electronic copy of the your return and any payment on your behalf to the various European tax authorities.

DISTANCE SELLING THRESHOLDS

In order to reduce the administrative burden and enable small online retailers to sell to consumers in other EU member states without registering for local VAT, there are national registration thresholds that are set by each country within the EU.

Each country has the choice of setting an annual distance selling threshold of either €35,000 or €100,000. When a business exceeds this threshold, a company will need to register for VAT as a non-resident trader in each applicable country.

These rules however do not apply for digital services sold under the MOSS VAT regulations. In this instance you will need to register for VAT in each country where you’re supplying your digital services (or register for the MOSS VAT scheme), regardless of any threshold.

DETERMINING THE PLACE OF PURCHASE

Businesses also need to provide two pieces of information and proof as to the location of their customers. These can include:

  • The customers billing address
  • Their IP address
  • A customer’s bank details
  • SIM country code
  • The location of the customer’s fixed landline

… the additional administration required in handling all the different VAT rates across the various member states has left many struggling to make the transition

The question has been asked as to what’s likely to happen if the UK left the EU. It’s likely that businesses trading in Europe would still have to adopt a similar process (just as they do for the US or Switzerland) and there is already a non-union VAT MOSS scheme in operation.

Of course none of this is certain, and may well change depending on the negotiations of an exit.

About the blogger

Katya PuyraudHaving started off in journalism in London, Katya Puyraud then went to film school and ended up working as an assistant film editor on over 20 US and UK films in the British film studios of Shepperton, Twickenham and Pinewood.

After working for the BBC in the documentaries department, she moved to Paris to become a scriptwriter for TV and film and published the art and poetry book Mademoiselle London, which debuted in the famous Shakespeare and Company bookshop in Saint Michel.

In 2007, she and her husband set up Euro Start Entreprises in Paris, helping hundreds of expats and entrepreneurs set up their companies in over 30 countries worldwide.