Important changes to the EU VAT legislation and why you should care

New year, new rules. Only this time we have nothing to do with the changes that are likely to affect us all: the EU VAT laws for digital businesses are changing.

The new EU legislation that came into force on 1 January 2015, affects all businesses that sell digital services such as downloads, games, apps, e-books and similar digital products, to other European countries. From now on, VAT on digital services will be paid in the consumer’s country, not the supplier’s country and will be charged at the rate that applies in the consumer’s country. So as opposed to the former procedure when VAT was charged in the country where the seller is located, the new law states that if you sell your products or services in France, you pay tax there, if your customers are in Germany, Lithuania, Denmark, etc., you pay tax in those countries, regardless of whether you, as a supplier, are based in the EU or outside. [Read more about the new law]

(We know it's boring, but please stay awake!)

So this is where it gets a little tricky. Since CGTrader operates as a mediator, a platform for digital products, at this point in time you will need to know and be able to prove the location of your customers, so that you can pay appropriate taxes later on. When you realize that you might be looking at accounting for 75 VAT rates in 28 different countries, the panic sets in. But hold on just a sec. To help digital businesses deal with reporting, each country has set up a Mini One Stop Shop scheme (MOSS), which would allow you to avoid registering for VAT in each country. The VAT MOSS scheme asks businesses to submit quarterly reports and VAT payments that are then sent to each relevant member state’s tax authority. It's not solving all the problems, but it's something.

On our side, we are adding new features to help you deal with the requirements. Firstly, you are able to see the location of your customers on the "My Sales" dashboard, which will lessen the amount of work you need to do to track the country that your buyers are based in. Secondly, we are going to move into a centralized payment system in the coming months that will make us (CGTrader) your one and only buyer. TEAMWORK!

So, the key takeaway from this post is that regardless of the value of the sales (there is no minimum threshold) to EU customers outside the country of the supplier, the supplier is now subject to the local VAT in the buyer's country.

Like yourselves, we are also trying to adapt as best (and quickly) as we can. Please let us know what you think about our upcoming transition to the centralized payment system: all feedback is welcome!