VAT FAQs

Download PDF

VAT FAQ

This is a list of most frequently asked questions. For more information about Recurly, VAT, or if you require support, please contact us at support@recurly.com.

EU VAT Overview

Q

What is the new EU VAT Directive for 2015?

Beginning January 1, 2015, suppliers of B2C broadcasting, telecommunications and digital/electronic services to customers in the EU will have to apply VAT based on the location of the end customer, unlike the current VAT liability which is based on the location of the company providing the service.

Q

What products/services does the new VAT rules apply to?

The new VAT changes apply to digital/electronic services which are established based on the following elements:

  • Service (i.e. not goods)
  • Delivered via the Internet, or an electronic network
  • Essentially automated, or involves only minimal human intervention
  • Impossible to ensure in the absence of information technology

The implementing regulation further provides examples of e-services, these are:

  • The supply of digitized products generally, including software and changes to or upgrades of software.
  • Services providing or supporting a business or personal presence on an electronic network such as a web site or a Web page.
  • Services automatically generated from a computer via the internet or an electronic network, in response to specific data input by the recipient.
  • The transfer for consideration of the right to put goods or services up for sale on an Internet site operating as an online market on which potential buyers make their bids by an automated procedure and on which the parties are notified of a sale by electronic mail automatically generated from a computer.
  • Internet Service Packages (ISP) of information in which the telecommunications component forms an ancillary and subordinate part (i.e. packages going beyond mere Internet access and including other elements such as content pages giving access to news, weather or travel reports; playgrounds; Web site hosting; access to online debates etc.).

Physical goods that are ordered online (including distance selling) and then physically delivered cross border to the customers through the conventional delivery methods are not considered digital/electronic services and are subject to a different set of VAT rules.

Q

When does the EU VAT Directive go into effect?

The new directive is effective beginning January 1, 2015 with no grace period. Businesses can individually register in every EU member state where the business has nontaxable customers. Another option for businesses is to select one EU tax authority through the Mini One-Stop Shop (MOSS), and file quarterly VAT returns for all of their EU sales.

Q

What happens if a business is non-compliant with the new VAT rules?

Merchants supplying electronic services to EU customers who fail to register for VAT may incur a late registration penalty. Repeat offenders will face additional fines and possible jail terms.

Q

Which tax authorities are subject to the EU VAT Directive?

All 28 EU member states have signed onto the EU VAT Directive with the new rules applicable to any company that has online B2C sales in the EU.

Q

How does the EU VAT Directive treat B2C and B2B customers?

Only B2C online sales are affected by the new rules. Effective January 1, 2015, the rules impose VAT charges based on where the customer resides (e.g. a French customer buying an e-book from a German-based company will pay French VAT). While B2B services are unaffected, records are still required to prove both B2C and B2B transactions.

Merchants and Compliance

Q

How do I identify my B2C customers?

Under the new VAT rules, merchants will need to provide two non-conflicting points of address proof for each customer, all of which must be archived for at least 10 years from the date of transaction. Examples include:

  • Credit card details
  • Bank details
  • Landline number
  • SIM card country code
  • IP address
Q

Are there any minimum sales revenue or transaction volume requirements that would provide an exception to the VAT requirements? Do they have tovalidate place of residence of customers?

The rules apply uniformly to everyone with no registration limits for these cross border supplies. For compliance, merchants will be responsible for validating a customer's place of residence. For example, if a business sells €10 worth of digital services to a customer in Germany then that business must pay that VAT in Germany. Typically, businesses can use either the IP address and location of the customer’s computer, or the address of customer’s credit card.

Q

If a merchant isn't ready for January 1, 2015, how should VAT be applied to transactions after that date?

The rules become effective on January 1, 2015, so all supplies must be treated as taking place where the customer is located on that date. A merchant must make a reasonable decision on the customer’s location and does not have the option to charge the rate where the merchant is established.

Recurly, Avalara and VAT

Q

Who is Recurly?

Recurly

Recurly provides trusted enterprise-class recurring billing management for thousands of subscription-based SaaS, Web 2.0, mobile, content, and publishing businesses worldwide. Recurly ensures setup is easy, integrations are quick, and our service scales with the needs of your business.

  • Increase customer retention and reduce churn
  • Maximize revenue opportunities with immediate ROI
  • Deliver a wider variety of customer offerings with more billing options
  • Scale your business and choose from a variety of our payment gateway partners

Companies of all sizes appreciate that recurring billing is significantly more challenging than processing one-time payments. Recurly is the leading pay-as-you-go recurring billing service because setup is easy, integrations are quick, and our service grows with the needs of your business.

Q

Who is Avalara?

Avalara

Avalara helps businesses of all sizes achieve compliance with sales tax, excise tax, and other transactional tax requirements by delivering comprehensive, automated, cloud-based solutions that are fast, accurate, and easy to use. Avalara's end-to-end suite of solutions are designed to effectively manage complicated and burdensome tax compliance obligations imposed by state, local, and other taxing authorities in the United States and internationally.

Manually managing sales and other transactional taxes can be both a financial and time burden. Avalara solutions enable businesses to automate the process, which helps reduce compliance errors and audit exposure, increase the speed of transaction processing, and reduce total compliance costs.

Q

How does Recurly and Avalara work together?

Recurly's merchants receive accurate VAT rates using Avalara's calculation engine. Merchants can enable VAT and select the EU countries where they are registered to collect VAT (their VAT nexus). Recurly works directly with Avalara utilizing all invoice information to determine the rate and VAT amounts. This VAT implementation is an in-the-box Avalara integration available to Recurly merchants at no additional cost.