2015 EU VAT Changes
Before 2015, VAT on online purchases are charged according to the country of residence of the online retailer. Starting 1 January 2015, this will no longer be the case – the applied VAT will now be based according to the country of residence of the buyer.
Rules applicable as of 2015:
From 1 January 2015, telecommunications, broadcasting and electronic services will always be taxed in the country where the customer belongs* – regardless of whether the customer is a business or consumer – regardless of whether the supplier based in the EU or outside
* For a business (taxable person) = either the country where it is registered or the country where it has fixed premises receiving the service.
* For a consumer (non-taxable person) = the country where they are registered, have their permanent address or usually live.
In other words, if you are selling digital goods (such as CD keys, e-books, and the like), it is your responsibility as the seller to charge the VAT according to your customer’s country of origin.
Example: The consumer is Romanian: you should apply the Romanian VAT. If the consumer is English, English VAT, etc…
To simplify this complexity that our governments have put in place for our business, a Mini One-Stop Shop (MOSS) has been set up:
This scheme will allow taxable persons established in France who/which deliver electronically supplied services to end customers in Member States in which they are not established to file returns and pay the VAT owed on these services through a single portal.
This streamlining measure will allow EU traders to avoid registering, filing and paying the VAT owed in each Member State of consumption.
Traders established outside the EU delivering electronically supplied services to non-taxable persons residing in the EU can also register with the MOSS in only one Member State even if they have customers in several MSs (“non-EU scheme”).
*Source for the following information: impots.gov.fr
Any taxable person established in France (or outside the EU) may register with the MOSS provided he/she/it supplies telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons in Member States in which he/she/it is neither established nor registered for VAT (e.g. for distance sales). These new arrangements are available to taxpayers either established in France (“EU scheme”) or outside the EU (“non-EU scheme”).
Taxable persons established in France (or established outside the EU) will be able to register for the MOSS scheme from end of November 2014 and file returns and pay the VAT owed on digital distribution services provided to consumers residing in another Member State. Registration will take effect from the first day of the calendar quarter following that in which the taxable person informs the French tax administration that he/she/it wishes to start using the scheme.
The taxable person must have a valid “espace professionnel” (professional tax account) to access this e-service. The trader will then be able to choose the online service (“Access the EU VAT Mini One Stop Shop”). A registration form can then be completed and submitted online.
The online “Access the EU VAT Mini One Stop Shop” service will be available during the last quarter of 2014 in addition to the online tax services offered in the “professional tax account” on the www.impots.gouv.fr website.
Registration details to be provided :
- Individual VAT Identification Number ;
- Company name ;
- Address ;
- E-mail address and Website ;
- Contact ;
- Contact’s telephone number ;
- Bank account details ;
- Date from which scheme will apply ;
- Activity type.
The MOSS only applies to services provided by electronic means (“digital distribution”); telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons residing in the EU (“business to consumer” or “B2C”).
Examples of e-services include (non-exhaustive list):
- VOD ;
- Downloaded applications (“Apps”) ;
- Music downloads ;
- Gaming ;
- E-books ;
- Anti-virus software ;
- Online auctions.
Distribution of physical products such as CDs, DVDs, video games or books is outside the scope of the mini One-stop shop.
The following table shows the VAT rates applicable in EU Member States:
HOW ONLINE RETAILERS CHARGE VAT FOR DIGITAL GOODS
Any online retailer has to follow the law and implement the VAT on their digital goods (e-books, software, video games, etc.). Most online CD key stores have integrated the VAT on their products either by applying it directly to the price, or adding it later during the selection process of the game.
So how does the customer get affected by this? There are two significant changes. The first one is about the price. As VAT in most countries have a larger percentage than the customer’s home country, the prices may increase by 20% (or more). This increase is due to the VAT added directly to the price which the customer now has to pay.
The second one is about the customer’s location. Some stores may ask users to select their country of residence for their respective VAT charges during the Checkout process. This results to an additional 20% (or more) of the price they have to pay originally. This increase have ticked off most customers as they feel that they’re being cheated by the store.
A majority of online stores have added upgrades to their systems to automatically detect the customer’s country through the use of their IP addresses. Their system will automatically add the corresponding VAT amount on top of the price the product costs. This is true in the case of digital download games.
Some customers may also want to change their country of residence (different from what their IP address is telling the store’s detectors. In this case, the store will ask you to prove that your country of residence is the one you want to apply during the Checkout process. See screenshot below for reference:
Some stores, like G2A.com, give their customers the freedom to choose their country of residence during Checkout (see screenshot below). Your conscience will be your own judge on whether you want to pay the additional VAT, or completely ignore it. While we are not sure how G2A.com plans on going through with this setup, we are quite confident that they will reconsider this quickly.
Not following the European legislation on the application of VAT to online goods subjects the retailer to sanctions. These are usually financial penalties and can be severe, not to mention going through prosecution by the Attorney General.
Each of the 28 European states have the right to take legal action against the vendors for VAT fraud. Financial sanctions typically include twice the amount of the unpaid VAT, however, some countries (like Germany, Croatia, and Slovenia) also apply fines ranging from 50,000 € to 125,000 €.
Here are the sanctions, fines, and other penalties that countries apply to fraudsters who do not report or pay VAT:
DETAILS OF PENALTIES BY COUNTRY
• Late registration or failure to register: There is no specific fine for non-registration, but fines of up to EUR 5,000 could generally be levied under the Fiscal Penal Act if a taxpayer does not fulfill its tax obligations. • Late filing of a return: For late filing of VAT returns, penalties of up to 10% of the VAT due may be levied. No penalty for late filing will be assessed if the penalty does not exceed the amount of EUR 50. Late filing of EC Sales Lists (ECSLs) can result in penalties of up to 1% of the amount of intra-Community supplies (up to a maximum of EUR 2,200 per ECSL). • Incorrect reporting in a return: Incorrect reporting in an ECSL may lead to a penalty of up to EUR 3,625. • Late payment of VAT due: The penalties are 2% of VAT due if the delay does not exceed 3 months; 3% of VAT due if the delay ranges between 3 and 6 months; and 4% of VAT due if the delay exceeds 6 months. No penalty for late payment will be assessed if the penalty does not exceed the amount of EUR 50. • Failure to pay VAT due: The penalties are 2% of VAT due if the delay does not exceed 3 months; 3% of VAT due if the delay ranges between 3 and 6 months; and 4% of VAT due if the delay exceeds 6 months. No penalty for late payment will be assessed if the penalty does not exceed the amount of EUR 50. • Failure to account for reverse charge VAT: A 2% to 4% surcharge can be assessed for late payment of VAT. If the offence was committed with the intent to deceive or harm, a penalty of up to 200% can be assessed. The penalty is not imposed if the VAT is fully deductible. • Non-compliance with Intrastat reporting obligations: Penalties can amount to EUR 1,090.
Late filing of VAT returns:
25€ per month (if no VAT is payable for the said declaration period) 50€ per month (if VAT is payable for the said declaration period)
Non-filing of VAT returns: 500€ per VAT return
0.8% interest of the amount of VAT due per month 500€ penalty for failure to file VAT registration application (can be reduced to 250€) penalty of 200% of the VAT due for non-payment of VAT, or fraud penalty of 20% of the VAT not declared may apply if a business understates a liability penalty of 10% of the VAT incorrectly claimed may apply if a business overstates entitlement to a VAT credit
Penalties – monetary penalties and interest on unpaid tax
*Default interest = determined on the interest rate announced by the Bulgarian National Bank; an average of 10%
Non-compliance to Croatian VAT:
*A fine of up to 500,000 HRK, depending on the offense
*A penalty of HRK 50,000 may also be added
Late payment of VAT debt: A delay interest of 12% per year will apply
VAT mistake: A fixed penalty of 10% of the amount of VAT due. 5% annual interest is imposed and calculated on the total amount of VAT due in addition to the fixed 10% penalty
Non-payment / late returns: 85€ for each month delayed
Maximum amount for a late tax return: CZK 300,000.
Non-filing of tax returns/delayed filing (more than 5 working days):
0.05% of the VAT liability for each day of delay; up to 5% of the VAT
0.05% of VAT credit for each day of delay; up to 5% of VAT credit
Fines: About twice the amount of unpaid VAT (no maximum limit)
Companies can be fined for late registration, but, in many cases, tax authorities do not apply the late registration penalties. Cases of abuse or denial of registration and payment of Danish VAT rise to penalties.
When tax authorities discover a mistake they are entitled to charge a penalty of up to € 13,000 and an interest of 0.06% per day is also applied.
The large-scale tax evasion can result in three to five years in prison if the amount owed is less than € 320,000. Tax evasion is punishable by five to seven years in prison if the amount of fraud is greater than € 320,000.
Mistakes in filing: A penalty of up to 13,000€ + interest of 0.06% per day
Large-scale tax evasion:
3 to 5 years imprisonment (if amount owed is less than 320,000€)
5 to 7 years in prison (if fraud is greater than 320,000€)
Non-payment / late returns:
The penalty for failing to register for VAT up to € 3,200.
Failure to provide VAT returns on time may result in a fine of up to € 13,000.
If a company paid less tax than was originally planned, or has neglected its obligation to submit periodic reports revenues:
Penalty amount varies depending on the amount time the company failed to pay, the length of the period of non-payment / underpayment of VAT or delay in the submission of statements of periodic income.
Declaration failure, defect or late filing of VAT returns, default or no payment of VAT, undisclosed business, non-declaration of self-liquidation, mislabeled invoices are submitted to the representation of penalties for a percentage of the VAT and related interest for late payment. Legal and criminal penalties may also apply for missing invoices.
Non-registration or late reporting:
0.4% interest rate per month (4.8% pa) on VAT arrears; additional 10% of the VAT arrears and 80% in case of fraud (undisclosed activity).
Failure to pay VAT declared on an invoice:
Penalty of 50,000€ (reckless tax evasion)
Professional or criminal evasion of VAT revenue – punishable by a fine, or imprisonment
Non-payment / late declaration
Late filing: Penalty at the discretion of tax authorities, up to 10% of net VAT payable on the period of VAT return (amount can not be more than 25,000€)
The default time for the VAT payment may result in late payment penalty. The penalty is 1% of the payment of VAT outstanding multiplied by the number of months of delay in payment.
Late filing – 1.5 % interest per month (maximum of 60%) Inaccurate filing – 3% interest per month (maximum of 120%) Non-filing of VAT return – 3.5% per month (maximum of 120%) VAT evasion – serious criminal penalties as provided by law
*Calculated on the amount of VAT not paid to the State *In case of administrative ot court settlement, the extra tax stated above is reduced to 3/5
Mistakes in reporting or invoicing: Penalty of up to HUF 500,000 Tax shortage: Up to 50% penalty of the tax shortage (in some cases up to 20% or 200%) Late payment: Penalty in the amount of the double of the interest rate of the National Bank of Hungary Self-revision: Penalty of up to 50% of late interest penalty
Late registration for VAT: Penalty of 4,000€ Any unpaid VAT liability: Penalties of up to 100% of the tax due + interest of 0.0274% per day (with effect from 1 July 2009)
Late registration for VAT: Penalty between 516€ to 2,066€ Failure to file VAT returns & settle outstanding payments on time: Penalties of up to 240% of the outstanding VAT amount
Errors: Penalty of 20% or 30% of unpaid tax + late payment penalty
*If company voluntarily discloses error to tax authorities, penalty may be waived or mitigated altogether *Late payment penalty cannot be more than the amount of the unpaid (primary) tax
Late payment penalty: 0.05% per day
*Penalties for non-compliance are still to be determined
Errors: Penalties between 10% to 50% of VAT due + interest for late VAT payment (0.03% per day)
*Penalties of 10% to 50% of the unpaid VAT + late payment interest may be due
Late returns: Administrative penalty amounting to LTL 200 to LTL 500 Late VAT payment: 0.03% interest of the VAT due per day
*Late payment interest may change according to the decree of the Government each quarter
Failure to comply with obligations: Penalty between 50€ to 5,000€ per infringement
*Includes: filing of VAT returns, issuing of invoices, keeping records, paying VAT, proper bookkeeping, registration, provision of information to the tax authorities, etc.
Fraudulent activity: aside from penal sanctions, a fine which could amount to 10% of the tax eluded will be applied
Late payment/Failure to pay tax due: VAT fine for late payment of not more than 10% of the tax due per year
Misdeclaration (Overstatement of VAT credit/Understatement of VAT liability): Misdeclaration penalty of 20% of the error may apply
*Penalty may be reduced to 10% if error is disclosed voluntarily *Interest would apply to an error unless there is no overall loss of revenue.
Late returns: May result to additional tax and interest
* To mitigate additional tax, a business must show a reasonable excuse for the default.
Late filing/Late payment: Fine depends on the number of times taxpayer filed/paid VAT late
Late payment: Penalty may be up to a maximum amount of 4,920€
Errors: Penalty interest (currently at 10.5% per year) on the amount of underpaid VAT liability or overstated VAT credit
*This penalty is charged from the date the tax is due, or the refund should have been granted *Individuals responsible for a company’s tax settlements may be held responsible for the company’s activities as per the Penal Fiscal Code
Penalties are fixed and depends on the type of taxpayer and the offense involved.
Errors (Understatement of liability/Overstatement of VAT credit): Penalty of up to 100% of the error
*Penalty may be mitigated if error is voluntarily disclosed to tax authorities *Interest normally applies to errors
Retroactive Registration: Penalty of 600€
Late returns/Late payments: Penalty ranging between 30% and 100% of the VAT in default (maximum of 45,000€) + interest of 4% per year
Non-payment/Late returns: Fines range from RON 1,000 to RON 5,000
Failure to register for VAT purposes: Penalty of up to 20,000€ Late submission of VAT return: Penalty of 30€ (minimum) to 16,000€ (maximum) Failure to file VAT return (even after formal request from tax authorities): Penalty of up to 32,000€ (minimum penalty is 60€)
Monetary penalty will apply for the following violations :
*Failure to charge and levy VAT when the liability arises *Failure to charge and levy VAT on the correct taxable amount *Failure to state the prescribed information on an invoice *Incorrectly calculating the amount of input VAT *Failure to submit a VAT settlement or fail to submit it within the prescribed time limit *Failure to report to the tax authority when activity begins, changes, or ceases, etc.
Non-payment/Late returns: Fine ranging from 2,000€ to 125,000€ depending on the type of offense
Failure to pay VAT due: Penalty of 50% of the unpaid VAT* + interest accrued from the late day of voluntary payment until payment id effectively made; interest rates vary each year and only apply to the unpaid VAT due and not to penalties
*Percentage may increase depending on certain criteria such as repeated infractions, or hiding relevant information up to 150%
Surcharge of 5% (if payment is done within 3 months from due date) + delay interest Surcharge of 10% (if payment is done within 3-6 months) + delay interest Surcharge of 15% (if payment is done within 6-12 months) + delay interest Surcharge of 20% (if payment is done after 12 months) + delay interest
*Surcharges will be reduced to 25% if taxpayer pays within the legal deadline as established by Spanish Law
Failure to Register for VAT: Penalty of 400€ Late Registration: Penalty of 200€
There are a number of penalties that apply in Sweden for compliance failures. VAT late penalties, back have already been addressed above.
Errors on a VAT return: Surcharge of 20% of the amount of tax that is assessed over and above the amount reported
Failure to notify within 30 days (where business exceeds VAT registration limit): Penalty is percentage of the VAT due; percentage depends on a number of factors such as reason for failure to notify and how the failure was disclosed
Late returns: Default surcharge
e.g.: 2 late VAT payments/VAT returns in a 12-month period = 2% penalty of the tax due on the 2nd return. The penalty is increased to 5% initially and 10% to a maximum of 15% for each statement or late payment. A company will remain in the fault supplement regimen until there’s been a 12-month period free from defects. To mitigate failure surcharges a company must demonstrate a reasonable excuse.
Allkeyshop’s VAT Detection Tool
Since the establishment of the new European legislation, we have implemented a filter system that allows our users to view the real price they will have to pay. These filters are visible and usable on each of our game pages.
We have made sure that you are informed about the fact that some CD key stores apply the Value Added Tax only after the buyer has added the game in his basket/shopping cart, through the use of our new tools and filters.
Filters such as payment fees. It is no longer uncommon to see some sellers add a Euro or more when trying to pay via PayPal or sometimes by credit card. This is because PayPal deducts fees from the payments sellers receive, and most sellers working with more or less reduced margins cannot afford these additional costs. These sellers, in return, charge these additional fees to their customers who choose to use these payment options.
This is the first thing you’ll see on our Payment Fees & VAT filter tool (see screenshot below).
The second part of the filter allows you to choose the VAT that you will have to pay according to your country of residence. Remember that you will have to prove that your country is different from the one detected by the store’s website so it is useless to cheat, unless you can prove that you live outside your country of residence with an address, a phone number, etc.
The third part allows you to exclude VAT where possible. We mainly set up this option for G2A users which, as mentioned earlier, is currently the only vendor not requiring users to pay VAT by default. G2A lets their users decide and choose the country and VAT of their choice.
We would like to point out that besides the fact that saving 20% or more for a game by not paying VAT is always interesting, not paying the required VAT amount is illegal.
We hope that you will find this guide useful and of great help to you when buying your CD keys through our price comparison service.