EU VAT Compliance for digital businesses

If you’re a business based in the EU, read on - you’ll NEED to know about this.

If your business is not based in the EU but your customers are, then you must read on as well - you’ve also gotten pulled into this group by the recent amendments made in Jan’15.

If you don’t belong to either of those two categories, then read on - just to quench your curiosity.

The basics. What is EU VAT?

The European Union Value Added Tax (EU VAT) is a general tax that’s levied on most goods and services that are traded for consumption within the EU.

It is applied, when a VAT registered business sells goods or services to another business or to a consumer based in EU.

Earlier VAT was being charged based on the country of the supplier, for digital products and services. But since the January 2015 amendments, VAT will now be charged depending on the customers' countries.

Here's a table to make things clearer:

EU VAT Rate Table

(Note: VAT registration is required for any and all e-services sales, regardless of volume)

*TBE = Telecommunication, Broadcasting and Electronic Services

So why is it a headache?

As mentioned earlier, businesses have to determine your customer's location, in order to charge the right VAT rate. And to do that, you will be required to collect two of the following pieces of information as proof of location of your customers, for each transaction -

  • Your customer’s billing address.
  • The IP address of the device used by your customer.
  • Location of the bank from which payment was made.
  • The country code of SIM card used by your customer.
  • The location of your customer’s fixed land line.
  • Credit Card’s BIN

Few crucial things to keep in mind:

  • Both pieces of information collected as location evidence must be non-conflicting.
  • All this information must be stored by businesses for at least 10 years.

In short, if you are serving customers from 28 different EU states, you'll have to charge them with 28 different VAT rates, without creating a mess. And for a subscription business with recurring revenue, the probability of creating a mess only increases.

Here are the different EU VAT rates for your reference:

Country VAT Rate
Austria Austria (AT) 20%
Belgium Belgium (BE) 21%
Bulgaria Bulgaria (BG) 20%
Cyprus Cyprus (CY) 19%
Czech Republic Czech Republic (CZ) 21%
Croatia Croatia (HR) 25%
Denkmark Denmark (DK) 25%
Estonia Estonia (EE) 20%
Finland Finland (FI) 24%
France France (FR) 20%
Germany Germany (DE) 19%
Greece Greece (GR) 23%
Hungary Hungary (HU) 27%
Ireland Ireland (IE) 23%
Country VAT Rate
Italy Italy (IT) 22%
Latvia Latvia (LV) 21%
Lithuania Lithuania (LT) 21%
Luxembourg Luxembourg (LU) 17%
Malta Malta (MT) 18%
Netherlands Netherlands (NL) 21%
Poland Poland (PL) 23%
Portugal Portugal (PT) 23%
Romania Romania (RO) 24%
Slovakia Slovakia (SK) 20%
Slovenia Slovenia (SI) 22%
Spain Spain (ES) 21%
Sweden Sweden (SE) 25%
United Kingdom United Kingdom (GB) 20%

How can Chargebee save the headache for you?

Chargebee ensures that you comply with the latest EU VAT rules, with little efforts from your side, in the following ways:

  1. Location Validation (For Digital Services): The customer's country must match either of the two evidences - country of the IP Address of the customer, or the country determined by the Card BIN of the customer. Unless and until the location is validated, the customer will not be able to complete the order.
  2. VAT Number Validation: For a transaction to be considered B2B, a valid VAT number has to be provided by the customer. Enabling the VAT number option will show a VAT Number field in the checkout pages. The entered VAT Number will be verified based on the European Commission’s VIES.
  3. EU VAT Invoice: Finally, in addition to the basic details, an invoice sent to the consumer will also contain the following EU VAT-specific information:
    • Merchant's trading name and address
    • Merchant's VAT number
    • Invoice Date
    • Buyer's name or trading name, and address.
    • The invoice contains the applicable VAT rate for each line item and a subtotal amount before applying VAT and a final invoice amount after VAT is added.

  We've been using Chargebee for half a year and they've already surprised us positively multiple times. One example was VAT regulation changes in January 2015 that almost made billing for electronic products in EU a nightmare, but as Chargebee had the support for new system available from day one, the trouble was minimized and correct VAT percentages used for each country automatically. 

Wai Hong Fong of StoreHub   Antti Virolainen, Co founder, Sharetribe

EU VAT Resources