A mutual and constant problem associated with online and e-commerce businesses is the value-added tax (VAT). VAT on Digital Services varies depending upon the services provided to another business or a private customer.
This Guide will provide further information on:
- How to Define Value Added Tax (VAT)?
- What comes under Digital Services?
- VAT Application On Digital Services
How to Define Value Added Tax (VAT)?
VAT is an abbreviation of Value Added Tax. It is a type of sales tax. In other words, when people purchase goods and products, they are charged with some tax amount. Which is later collected by the government. Every time customers buy raw material or any other supply from a known brand, they pay tax with the price as well. Also, VAT on digital services is applicable.
The companies get the benefits from the government for following the rules and paying the tax amount in the countries where it is being followed religiously.
What comes under Digital Services?
Digital business is a kind of business structure that is completely online. It does not require a physical presence in the business market to function and meet business activity needs. It is very popular and the trend is increasing every passing moment. Some of the digital e-commerce services are listed below.
- Electronic websites are used to provide digital services.
- Gambling games, music, and film downloads using the facility of the internet.
- Using the electronic networks, the automatically generated services, and supplies by computers.
- Distance learning services, search engines, and other provision of databases.
- Digital applications, e-books, software, and the provision of digitized products and services.
Moreover, all the online businesses whether they sell online gaming, smartphone apps, e-books, streaming, and digital access to other products are considered as for the purpose of VAT on digital services.
VAT Application On Digital Services:
Any kind of transaction that is made in digital e-commerce comes under the terms of VAT on digital services. The points to focus under serious consideration includes the following:
- The location where the services were provided.
- The area where they were most effectively performed.
- To determine who is accountable for VAT on the services, the need is to figure out whether the services are provided to a business or to a customer.
Business to Business – Digital E-commerce with EU Businesses:
If the services are being provided to a business which is located in the EU. Then the customer is accountable for VAT. To figure the location of the business, it is important to know where the business is registered and the location of its head office as well. The relevant country with the fixed premises and staff might also help in this regard.
Some business customers do give VAT numbers to prove that they are registered. In case the customer does not provide the VAT number, he has to prove with an alternative way that he is VAT registered in order to be treated as a business customer.
Business To Customer – Digital E-commerce with EU:
A permanent residential address is required for the customer’s location. In this case, VAT is applied to the customer who avails of the online services. The taxation rate is also directly affected by the location of the customer.
In the B2C case, the supplier is accountable for VAT but the rate depends on the country rate of the customers. If the customer is residing in the UK, then the UK VAT rate will be followed.
To sum up the discussion, we can say that this blog provided enough general information to develop an understanding of VAT, digital services, and how does VAT apply to digital services. Only if the directed rules are being followed religiously, the processing will be smooth. In some cases B2B and B2C is outside of EU countries can be an option of dealing as well, no VAT will be charged for them.
For Further Information about VAT on Digital Services, reach out to Accotax now!