Search code examples
service

VAT on digital web service

I have a website where customers can create marketing content. Nothing is downloaded.

Do I charge VAT in the USA / UK for example.

I know that VAT applies on digital downloads but what about an online service?

Solution

  • The USA does not have a value-added tax system, the UK does.

    The UK is still part of the European Union (EU), so for the EU's 2015 VAT rules on the cross-border supply of digital services to be applied a few criteria first need to be met:

    1. A digital service is defined as one that does not require human intervention and needs to be provided via the internet. The service needs to be automated. An online service can be automated, the rules do not just target digital downloads.
    2. Here are some examples of what services are affected (source: Irish Government Revenue website):

    (a) Digitised products, (such as software and changes to or upgrades of software) services which provide or support a business or personal
    (b) Presence on an electronic network (for example, a web site) services automatically generated from computer, via the Internet or an
    (c) Electronic network, in response to specific data input by the customer other services which are automated and dependent on the Internet or an electronic network for their provision

    1. The service offered needs to be cross-border. Services supplied within one Member State, for example a UK-based company supplying a digital service to a UK consumer, are not affected. A digital service supplied by a US company to a consumer in an EU Member State is affected.
    2. The supply comes under the EU VAT rules if it is a business-to-consumer (B2C) supply. Supplies to businesses (i.e. when the customer supplies a VAT number) are not affected.
    3. If it is a B2C supply then the consumer's location needs to be identified by the supplier so as to apply the correct VAT rate. Consumers can be identified using non-sensitive data detected in the transaction such as IP address, credit card BIN number, mobile phone SIM card code, and billing address. Two pieces of evidence must match for the supplier to identify the consumer's location.
    4. Once the consumer's EU location is identified then the VAT rate should be applied to the digital service B2C supply.
    5. Physical supplies to consumers in the EU are, for now, unaffected.

    Disclaimer: I work for Taxamo. I would also encourage you to contact your tax advisor for more information specific to your circumstances as the level of detail provided in your question meant I had to make some presumptions.