The six-month countdown has begun to a major change in the EU VAT system.

From January 1, 2015, VAT on all telecommunications, broadcasting and electronic services will be due where the customer is based, rather than where the supplier is located. In parallel, a mini one-stop shop will be launched, so that businesses supplying e-services to customers in more than one EU country will be able to declare and pay all their VAT in their own member state. Under current rules for e-services within the EU, VAT is due where the supplier is based, and at the rate set by that member state.

With the standard rate varying from 15 to 27 per cent across the EU, businesses frequently establish in a member state with a low standard rate, which then applies for the e-services they supply to all private customers throughout Europe.

This change will bring important benefits

The change in VAT rules from January will mean an end to this, as it will be charged at the rate of the customers’ country. This will apply whether it is an EU or non-EU business doing the sale. So a customer living in Copenhagen will be charged the Danish VAT rate, regardless of whether the supplier is from Denmark, Luxembourg or the US, for example.

This change will bring important benefits. First, it will ensure fairer competition between domestic and non-domestic businesses selling the same services. Second, it will create a more level playing field for SMEs and other companies that cannot relocate to a lower-tax member state and who, up to now, may have lost out to more mobile competitors. Finally, it will ensure fairer distribution of tax revenues between member states, as they will receive the tax on the services consumed by their own residents.

Businesses will be able to make a single declaration and payment in their own member state through a web portal to account for the VAT due on sales in other member states.

Member states agreed on these new VAT rules in 2008. However, entry into force was set for 2015, to give enough time to all stakeholders to prepare for such a transition.