By Matt / December 30th, 2014
From January 1st 2015, businesses who sell digital products and services to European customers should begin charging VAT at the rate of VAT in the country in which the customer is based, not their own.
These new rules apply to the sale of most digital products and services, and include both web hosting and domain names, as well as software supplied electronically - such as WHMCS itself.
Currently, if you sell to a consumer inside the EU then VAT is charged at the rate of the country where you - the seller - are based. As from January 1st 2015, VAT will be charged at the rate applicable in the EU country the customer is located.
For example, if you take WHMCS as an example, currently when we sell a WHMCS license to a customer in Italy we charge them the UK VAT rate of 20%. However, as of January 1st, we will need to charge the Italian VAT rate of 22%. This money then goes to the Italian government instead of the British one.
As before, if the supply is to a business that is within the EU that has a VAT registration number, but outside your own country, then the customer must account for the tax through the reverse charge mechanism. And WHMCS has supported this for a long time via the EU VAT Addon.
What is the point of all this you might be asking? Well, according to Andrew Webb, Senior VAT Policy Manager at HM Revenue & Customs, it is the "final change in a series of changes to embed the idea that with consumption taxes, such as VAT, the place where the tax is paid is the place where the service or goods is enjoyed, consumed or used".
Or, in other words, it's trying to make it fairer for everyone by creating a level playing field and removing the current competitive advantage gained by companies based in an EU country with a lower rate of VAT.
So what will you need to do? The primary thing is update your tax rules inside of WHMCS. This can be done in Setup > Tax Rules where you will need to delete your existing VAT rules, and create new ones using the appropriate VAT rates for each individual EU member country. The official Europa list of VAT Rates can be found here. All invoices issued from that point onwards will then use the new rates of VAT. Deleting the previous tax rules will not affect existing invoices - they will maintain their current VAT rates as applied at the time of generation.
The other big change will be the way in which you need to report the VAT you have collected. To avoid having to register and pay VAT in every member state where you have customers, a special scheme has been introduced called the Mini One Stop Shop (MOSS). MOSS haven't provided access to the reporting system yet, and so we can't say at this stage exactly what requirements this has, but we are expecting to learn more soon and will be providing the appropriate reporting tools in due course.
Of course, we too will be implementing these changes and so if you are an EU based customer of ours who currently pays VAT at the UK rate of 20%, you may find your next and all future invoices have a different total amount due. This could be higher or lower, depending upon your country, and if you currently pay by PayPal Subscription, this will require manual intervention in order to ensure you are paying the correct new amount. If you know this will affect you, we would recommend cancelling and creating a new PayPal subscription from the next invoice we issue to avoid any overpayments or interuptions in service.
As ever, we are not tax experts, and would strongly recommend anybody with any questions or concerns regarding the new rules seek appropriate advice from your local Tax and VAT Authority. There is however a huge wealth of information available out there on the internet about these changes. Below I highlight some of the most useful links I've found.
EU Commission Informationhttps://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm
UK HMRC Guidance on Supplying Digital Serviceshttps://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers
How to Register for and Use the VAT Mini One Stop Shop (MOSS)https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop
VAT Rates by Countryhttps://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf