How does VAT on digital services work?
VAT on digital services is the VAT or GST charged on software, apps, streaming, e-books, online courses and other services delivered electronically. For sales to consumers, it is usually charged at the rate of the country where the customer lives, not where the seller is based, so a seller can owe tax in many countries at once.
Also calleddigital services tax (VAT)e-services VATTBE services VATSaaS VAT
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- Taxed where
- The consumer lives
- EU threshold
- €10,000 a year, EU-wide
- B2B sales
- Usually reverse charged
How VAT on digital services works
In the EU, telecommunications, broadcasting and electronic services sold to consumers are taxed in the customer's country. A seller established in one member state can charge its home VAT while its cross-border sales of these services and distance sales of goods stay under €10,000 a year in total; above that, it charges each customer's local rate, usually declared through the One-Stop Shop. Sales to business customers are normally reverse charged, so the seller needs the customer's VAT number as evidence. The seller must also record evidence of where each consumer is, such as billing address, IP address or bank country. Many countries outside the EU, including the UK, Australia, New Zealand and Singapore, apply the same destination rule and require overseas sellers to register. In the US, whether software and digital products are subject to sales tax varies by state.
Common questions
Is SaaS subject to VAT?+
Yes, in the EU and UK it is an electronically supplied service. Business customers usually account for the VAT under the reverse charge; consumers are charged VAT at the rate of their country.
How does a seller prove where a customer is?+
By recording location evidence, such as the billing address, the IP address of the device, the bank or card country, or the mobile SIM country. EU rules require consistent evidence for each sale.
Is digital services VAT the same as a digital services tax?+
No. VAT on digital services is a consumption tax paid by the customer. A digital services tax is a separate tax that some countries charge on the revenue of large online companies.
Software that calculates VAT on digital services
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