Businesses and tax authorities both understand that value-added taxation is a complicated tangle of rules and regulations, especially for firms operating across geographical borders. To simplify the structure for businesses, EU countries have implemented a VAT MOSS scheme to aid the taxation of certain cross-border supplies.
An overview of VAT MOSS
“VAT Mini One Stop Shop”, or VAT MOSS, is an optional scheme to aid businesses selling certain cross-border supplies. The program allows companies to register for VAT in just one country, as opposed to registering in every country to which supplies are provided.
If your business sells telecommunication, television and radio broadcasting, or other digital services to non-taxable persons in other countries, you’re eligible to enrol in the scheme. The services covered by the program are listed below.
- Web hosting
- Software supplies
- Database access
- Downloadable apps or music
- Online gaming
- Distance teaching
In addition to the listed services, the other crucial part of the structure is the mention of “non-taxable persons.” This is just another term used to describe private individuals and public bodies. As long as you provide these digital services for final consumption, you’re eligible to join the plan.
At present, there are two VAT MOSS schemes available.
- Union scheme
- For businesses based inside the European Union with at least one branch in a member state
- Non-union scheme
- For businesses based outside the European Union, without any offices in a member state
The primary benefit of the setup is that your firm gets to avoid an unnecessary amount of red tape by registering for VAT in just one country. Returns and payments are all managed through a single tax authority.
An example of the scheme being applied
To see the VAT MOSS scheme in practice, let’s take a cybersecurity company selling software across the EU. Since the business is based in the UK, it’s registered with the HMRC’s Mini One Stop Shop plan.
The firm sells one product to a customer living in Germany. According to the rules, the seller must charge the customer the local rate of VAT for digital services, which is the standard charge of 19% in Germany.
The business will not be charging the UK rate of 20%, despite being registered in the UK. In summation, despite the VAT MOSS scheme allowing businesses to handle all VAT procedures through one tax authority, the rate charged for cross-border supplies depends on the customer’s location.
The Union scheme
If your business has its head office in the EU or a branch in the EU, it can enrol in the Union’s VAT MOSS scheme. Whenever you sell the eligible cross-border supplies, you can benefit from the structure, except on two occasions.
When you sell to a customer in the EU country you selected as your member state of identification.
When you sell to a customer residing in an EU country where you have offices. These are known as member states of establishment.
For a company with a head office in an EU country, that nation will be the member state of identification by default. A company with branches in the EU can select a member state of identification where one of its branches is located.
The Non-Union Scheme
As we mentioned earlier, if your business is not based in the EU, it can still enrol in a separate scheme and enjoy the benefits of the VAT MOSS structure. It first needs to select a member state of identification, which can be any EU nation in this instance.
The business will get a VAT number from the member state of identification, after which it can sell to customers and charge their local rates of value-added tax.
Unlike a business in the Union scheme, one that is registered in the Non-Union structure can enjoy the benefits of the plan without any exceptions. Under both plans, however, inactivity in selling cross-border digital supplies, failing to comply with the rules, and voluntary departures will lead to exclusion from the scheme.
In addition, if you sell goods and services outside the scope of the setup, they will be governed by the standard rules and regulations.
The VAT MOSS scheme is one of the many initiatives taken by the European Commission to simplify one part of the tax process. Cross-border suppliers add additional dimensions to the value-added tax process when we consider elements such as varying rules and exchange rates. To understand the structure in its entirety, read through the EU’s detailed guide explaining both the significant details and the minutiae, from registration and deadlines to deregistration and exclusion criteria.
Another option to simplify the tax process is to use an automated VAT recovery software like VAT4U. While we don’t manage output tax processes, we set in place quick and easy methods to reclaim taxes on business expenses. See how our service works and try the platform for free.