European VAT for Digital Services

A combination of WordPress stats and my spider sense tells me that a lot of my readers probably work offering digital services. If this is the case for you, listen up – the laws are about to change for any trading you do within Europe.

Time was, when trading digital services with other Europeans (say, for example, you are a freelancer in Spain selling eBooks in France), you didn’t have to charge VAT. All that’s about to change.

As of 01/01/2015, new regulation dictates that digital service providers now have to charge VAT at the rate of the country they’re selling to. In the example above, you’d have to charge 20% VAT, as this reflects current French levels. Note that this only applies to B2C models – if you’re selling to businesses, tax is payable in their country and not yours.

How do I declare VAT for digital services in Spain?

  • First of all, you need to sign up to the MOSS (Mini One-Stop Shop, or “Mini Ventanilla Única”). You do this by filling in the Formulario 034.
  • Secondly, when the moment to pay in tax comes (at the beginning of April, July, October and January), you’ll need to fill in a special VAT declaration form. As of date of writing, this is still being finalised, but according to the Hacienda it will “probably” be Modelo 368. They have “reassured” me that they believe this will be approved before it is due in the beginning of April.

Am I selling a Digital Service?

The UK Government gives the most sensible answer to this:

‘Digital services’ includes:

  • Broadcasting – the supply of television or radio programs
  • Telecommunications – fixed and mobile telephony, fax and connection to the internet
  • E-services – video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions

This is a fast-changing area. These are examples rather than a complete list of digital services.

(i.e. no-one really knows)

Why were this laws introduced?

Reading between the lines, the news laws were introduced to stop e-commerce tax evaders creating a base in low-VAT countries such as Luxembourg and operating from there. Arguably, introducing the new rules means all suppliers are on a level playing field, and that you can’t be undercut when supplying to your own country by someone from outside the EU who doesn’t have to charge VAT.

As well as worrying that they’ll make their business less competitive than before, those against the new laws mainly point to the administrative headache they’ll create. In response to the question “Will the taxation of e-commerce supplies not give rise to administrative red tape”, the European Union replies with a definite “No.” We’re not so sure…

 

For more information about upcoming VAT changes for digital services sold within the European Union, please refer to the UK Gov, European Union and Spanish Government’s websites.

Text and photos by Penelope

Posted in Tax

3 Replies to “European VAT for Digital Services”

  1. Hi there,

    Thank you for creating such a fantastic blog! Your posts have offered a wealth of information.

    My partner and I are planning to move to Spain later this year/early next. The plan is to bring our online freelancing businesses with us, too.

    My question is: How would IVA (VAT) work for earnings that derive from outside the EU?

    Most of our clients live in the USA, Canada, and Australia and the only info we’ve found on Spanish tax websites regards the current laws between fellow EU countries, and nothing else.

    While I appreciate you’re not an accountant, any advice or opinion would be help a lot!

    Thank you!
    Dan

    1. Hey Dan! Some good news: you don’t have to pay VAT (see this article for more info http://selfemployedinspain.com/invoice-clients-abroad/). You do need to pay income tax (using this form http://selfemployedinspain.com/fill-in-modelo-130/) and social security. Glad you liked the blog – if you’re feeling motivated, let me know if you’d be interested in being interviewed about your experience once your business is up and running as I’m sure this would be useful for other readers!

      1. Hi Penelope!

        That’s excellent news. It makes the burden of SS and income tax way more bearable! Thank you so, so much for supplying me with this information.

        I’d love to do the interview once we’re up and running in Spain; I could see it helping many people.

        I’ll be in contact for sure.

        Until then, keep up the great posts – you’ve got a new subscriber!

        Warmest regards,
        Dan

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