2019 VAT thresholds ease burden on EU digital businesses

SMBs in the EU have a reason to celebrate! As of January 1, 2019, three changes go into effect that significantly simplify tax compliance for small and medium businesses selling digital products. These changes are:

• B2C sales of digital goods have a new threshold and single-tax-rate policy.SMBs under a certain threshold must collect just one piece of location evidence, not two. All businesses using OSS can invoice according to the rules of their home country, rather than adjusting to foreign EU rules.

• These rules greatly simplify the VAT process, offering relief to small and micro-businesses, helping them save time and money. In fact, according to the European Commission, the new rules could reduce the cost of VAT compliance by up to 95%!

• Read on to make sure you get the most out of the 2019 EU VAT threshold changes.

2019 VAT threshold for B2C sales in the EU

If your business stays below €10,000 in cross-border sales of digital goods per year, throughout the EU, then you can charge the VAT rate of your home country on all those cross-border sales. This makes it much easier to comply with VAT, because you’re only using one tax rate on your digital goods. Woo-hoo!

Basically, this threshold rule changes the EU VAT policy that had been in place since 2015. Here’s what it changes for your small business:

• No longer charge VAT at your customer’s local rate
• No longer declare VAT through One-Stop Shop (OSS)

EU member states are drawing up their own individual legislation around the new B2C threshold. So some states might have special rules that apply only to domestic businesses in that country.

How exactly is the VAT B2C threshold measured?

Here’s a quick explanation of which sales are eligible toward this B2C VAT threshold.

The threshold amount is “per year,” which means sales from any 12 month period. This is a “rolling” yearly measurement, so you should consider your total sales in the current fiscal year or the preceding year. You must look at past sales and project your future sales.

The threshold amount is a total of €10,000 in cross-border sales of digital good and services. “Cross-border” means from your domestic country to another EU member state. The threshold includes all of these cross-border sales throughout the EU, in any and all countries (except your home country).

Here’s what does not contribute to the threshold amount:

• Sales of other types of products
• Sales in your own domestic country
• Sales to customers outside of the EU

What happens if you pass the VAT B2C threshold?

As soon as you expect your annual digital sales to pass €10,000, you should prepare to switch back to the 2015 policy, which is based on “place of consumption.” What’s this?

• You charge VAT on each sale based on the customer’s location. This means managing the tax rates of all 28 member states.
• You send invoices according to the destination country’s rules.
• You declare VAT through OSS.

Note: this new rule is actually optional

You can choose to stick with the general VAT rules and continue charging VAT based on the customer’s country.

If you choose to stay with the general tax scheme, you’re bound to it for two calendar years. If you do want to switch to the new rules, you’ll be able to deregister from OSS from January 1, 2019. And why wouldn’t you want to switch, when it can make your life so much easier?

2019 VAT threshold to collect just one piece of evidence

If your business sells below €100,000 in cross-border sales of digital goods per year, throughout the EU, then you only need to collect one piece of customer location evidence. According to the general VAT rules for digital products, suppliers must collect and record two pieces. So this cuts your work in half! ;)

The single piece of evidence you collect must come from a third party (not submitted by the customer themselves) and must be one of the following:

• Internet Protocol (IP) address of the device used by the customer or any method of geolocation
• Bank details such as the location of the bank account used for payment
• Billing address of the customer held by that bank
• Mobile Country Code (MCC) of the customer’s SIM card
• Location of the customer’s fixed landline telephone number (if that’s how the service is supplied)

How exactly is the VAT threshold measured?

This VAT threshold is measured in exactly the same way as the B2C threshold mentioned above.

The threshold amount is “per year,” which means sales from any 12 month period. This is a “rolling” yearly measurement, so you should consider your total sales in the current fiscal year or the preceding year. You must look at past sales and project your future sales.

The threshold amount is a total of €100,000 in cross-border sales of digital good and services. “Cross-border” means from your domestic country to another EU member state. The threshold includes all of these cross-border sales throughout the EU, in any and all countries (except your home country).

Here’s what does not contribute to the threshold amount:

• Sales of other types of products
• Sales in your own domestic country
• Sales to customers outside the EU

As soon as you pass the €100,000 mark for one calendar year, you must begin collecting two pieces of customer location evidence.

VAT OSS invoices according to your home country

This change is short and sweet — and there’s no threshold attached! As an EU business, No matter how much you sell in the EU, you stick to your domestic rules around tax invoices. So if you are based in Germany and sell to a customer in Italy, you no longer abide by Italian invoicing rules. There’s no need to tweak invoices to comply with each country’s expectations. Phew!

**Please note these changes do not apply to non-EU businesses.

Resources

• What changes on January 1, 2019? from the European Commission.