VAT on digital goods to be levied locally under new EU rules

Ebooks, downloads and apps will be taxed at rate in consumer’s member state

New European Union tax rules, which come into force this Thursday, will see digital products taxed at the VAT rate applicable in the consumer’s member state rather than the seller’s.

The rules are being introduced to stop companies that trade online – such as Amazon, Apple and Google – from routing purchases through low- VAT countries such as Luxembourg.

VAT on digital products such as ebooks, music downloads and apps used to be charged in the country of the supplier. However, after January 1st, VAT will be payable in the country where the digital product is bought. This means Irish SMEs potentially have to charge and account for up to 75 different VAT rates in 28 countries.

Jarlath O’Keefe, head of indirect taxes at Grant Thornton, said Irish suppliers of digital products and services will need to determine where their customers are established or usually reside and will need to account for VAT at the applicable rate in that member state. He said this could result in suppliers having to register for VAT in all EU states where they have customers.


Revenue Commissioners

As an alternative to multiple VAT registrations in member states, affected Irish suppliers may be able to opt to account for VAT across the EU via a single electronic declaration with the Revenue Commissioners, he said.

The mini-one-stop-shop scheme (Moss) allows Irish businesses to submit returns and pay the relevant VAT due to member states to the Revenue, rather than registering in each country. E-commerce website Etsy, which has its European headquarters in Dublin, said sellers on its site will be expected to collect and pay VAT themselves.

“Historically, Etsy has acted as a venue on which individual entrepreneurs run their businesses, with Etsy sellers responsible for paying appropriate sales taxes for those businesses. We are treating VAT the same way,” the company said. “We understand that the new regulations will be an added burden for shops that sell digital items and deliver them electronically to EU customers and we’re working on a tool that will make the process easier.”

Website refitting

Meanwhile, Irish-based technology company


has launched a plug-in with e-commerce platform WooCommerce, which enables any e-commerce business to quickly adjust their website to comply with the new rules.

The plug-in will collect customer-location evidence per transaction, validate business-to-business transactions and calculate VAT for 28 EU states. It will also calculate ongoing VAT liability, create quarterly EU MOSS returns, create audit files for EU tax authorities and securely archive data for 10 years, as mandated.

Taxamo chief executive John McCarthy said the plug-in will enable “merchants to achieve full EU VAT compliance in a matter of minutes”.

Minister for Finance Michael Noonan has said Ireland could gain from the VAT changes because it is a net recipient of electronic and broadcasting services. In terms of inward supplies, the estimate is driven by UK-based television services and Luxembourg-based electronically supplied services.