Selling digital products online can be a lucrative business. Before you start to collecting orders from EU customers, ensure that you are registered with VAT MOSS (Mini One-Stop Shop). VAT MOSS is a centralized scheme to account for EU VAT. Like most other product categories, electronically supplied services (or commonly known as digital products) are also subject to VAT. You would apply and charge your customer’s local VAT rate (e.g. 19% in Germany). Businesses are responsible for charging a VAT against their customer’s invoice on behalf of tax authorities in the European Union.
You need to pay back the collected VAT in due course using the VAT MOSS scheme. All your sales to customers in the EU for the reporting period are compiled with the accompanying VAT. For example, the 19% VAT to your German customer. Any taxes you have collected from customers must be forwarded to the tax authorities using VAT MOSS.
VAT remittance is performed on a quarterly basis. The quarterly tax return must be submitted electronically by the business to the tax authority no later than the 20th day following the end of the calendar quarter. This means that the tax return must be transmitted for:
- 1st calendar quarter by 20 April,
- 2nd calendar quarter by 20 July,
- 3rd calendar quarter by 20 October,
- 4th calendar quarter by 20 January (of the following year).
Technically, you are given 20 days to compile and file your VAT returns. Even if no sales were carried out with EU customers in the relevant calendar quarter, a “nil return” must be submitted. Failing to file will trigger reminders and potential fines.
Due Diligence Before Deadline
VAT rates are different across the 28 EU countries. Each country in the EU has its own VAT rate. Having customers across the EU can mess up your quarterly reporting if wrong VAT rates are applied during charges. Inaccurate reporting will tie up resources and cause unnecessary costs.
You can look up the correct VAT rate for every EU member state automatically with Vatstack Rates and make invoice adjustments where needed.
Furthermore, if you have business customers who entered their VAT number, validating them once again before deadline is recommended. VAT registrations can expire. In such cases you have to ask your customer to provide their new VAT number or treat them like a consumer again by charging VAT.
We’ve also written a tutorial that shows you how you can automatically validate a VAT number shortly before an invoice becomes due.