VAT RULES FOR B2C AND B2B Sales

As per the EU Directive 2006/112/EC, there are basic principles to understand the application of VAT in different scenarios. 

 

Scenario 1:

A business established in the UK. Let’s see how the EU VAT rules would apply on it.

B2B sales: There are three possible scenarios -  

1. If a customer is based in the UK, VAT is charged at UK’s rate. 

2. If a customer is based in another EU country, no VAT is due if a valid VAT registration number is provided by the customer. 

- In this case, a reverse charge mechanism is applied and the customer would be required to pay VAT to their government at the VAT rate of their own country.

- The seller must record the payment with all the details including customer’s VAT registration number and submit it with their EC sales list (a list of supplies made to VAT registered businesses in other EU countries). 

3. If a customer is based outside the EU, VAT is not charged. 

B2C sales are divided into two categories -

1. Telecommunication, Broadcasting and Electronic (TBE) Services*:

If a customer is based in an EU member state, VAT is charged at the customer's country rate

If a customer is based outside the EU, VAT is not applied on sales. 

2. Others (Non-TBE):

If a customer is based in the UK or any other EU member state, VAT is charged at UK’s rate. 

If a customer is based outside the EU, VAT is not applied on sales. 

 

Scenario 2:

A business established in a non-EU country and the customer is based in the UK. How will the EU VAT rules apply in this case?

B2B sales: 

VAT is not applied on sales.

B2C sales:

1. TBE Services: VAT is charged at UK's rate (the customer's country).

2. Others: VAT is not applied on sales.


*TBE services include -

  • Downloadable software licences and software updates
  • Online training courses
  • Online magazines and newspaper subscriptions
  • Ebooks
  • Software as a service
  • Advertising space on websites
  • Downloads and online streaming of music, films & games
  • Fee based online membership
  • Website domain sales and web hosting services

Following goods and services, where the internet is just used to facilitate the sale, are not a part of TBE and hence are not affected by the new rules -

  • Sale of physical goods, where the ordering and processing are electronic
  • Physical books, newspapers or journals
  • Advice offered through email by lawyers and consultants operating in the financial services industry
  • Online booking services for events, hotel or restaurants
  • Ads in newspapers, posters or television
  • Courses, tutorials delivered by a teacher (ex - using a service like Skype)

Businesses that sell digital goods and services through internet portals, gateways or marketplaces must figure out whether they’re making the supply to the consumer or it’s being fulfilled by the platform.

The owners of the platform are responsible for charging VAT if they are the ones who authorize the transactions and delivery of services. 

For instance, if an app-developer is selling apps through Apple’s app-store, Apple is responsible for collecting VAT. As Apple acts as a licensee for the app-developer and sells apps to consumers with a set commission.