If you sell digital products online, it's important to be aware of the recent VAT changes in the European Union. From 1st January 2015, electronic services sales must always be taxed where the customer is based and not where the store is located. A business in Ireland that sells a digital download to someone in Spain, for example, needs to pay the Spanish tax authorities VAT on that sale. It is the seller's responsibility to comply with tax laws, wherever their business operates.

Electronic services impacted by the new laws include:

  • images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files
  • music, films and games, including games of chance and gambling games and programmes on demand
  • on-line magazines
  • website supply or web hosting services
  • distance maintenance of programmes and equipment
  • supplies of software and software updates
  • advertising space on a website

These new EU VAT laws mean that you must:

1. Change the way you register for VAT You must register for VAT in one of the following ways:

  • Register for VAT in every EU country where you do business.
  • Register for Mini One-Stop-Shop (MOSS) in the EU country where you reside. Irish VAT customers can register for MOSS here.

2. Change the way you charge VAT You must now charge VAT based on the buyer's country, not on your location.

3. Collect evidence of a buyer's location You are now required to obtain two pieces of evidence of the buyer's location. These can be:

  • the billing address of the customer
  • the Internet Protocol (IP) address of the device used by the customer
  • location of the bank
  • the country code of SIM card used by the customer
  • the location of the customer's fixed land line through which the service is supplied
  • other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)

The proof you collect about the location of your customer must be kept for 10 years in case of a VAT audit. To find out more about the new laws for VAT on digital services in the EU click here.