The ultimate VAT MOSS compliance guide by Octobat

Octobat sales tax calculation systems ensures you comply with all EU VAT rules, automatically. This guide is meant to present you what you should know when you sell digital goods online in Europe.

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What is VAT?

The Value Added Tax, or VAT, in the European Union is a general consumption tax assessed on the value added to goods and services by the purveyor. It applies to nearly all goods and services that are bought and sold for use or consumption in the EU. Sales of goods or services to customers living abroad are normally not subject to VAT. There are some notable exceptions to this in countries which have adopted approaches similar to the EU (e.g. Australia). By comparison, sales into the EU are subject to VAT tax to keep the system fair for EU producers so that they can in the European market an a level playing field with suppliers situated outside the Union.

What is VAT MOSS?

Since the beginning of 2015, the applicable tax for electronic services, telecommunications, broadcasting is always at the tax rate of the country of the buyer. The supplier’s location has no impact on the VAT collection, only the customer location does. This rule apply for International sales as well.

  • For a business (VAT-registered corporation) = Country of registration or the location of the received service.
  • For a consumer (non-taxable person) = Country of registration, where they have their permanent address.

Learn more about VAT MOSS by reading the “Guide to the VAT mini One Stop Shop” written by the European Commission:

What are the EU VAT rules?

Registration

If you are a business in one of the EU state, it is a legal obligation to register for VAT in this country. Depending on what you sell, products or services, you may also have to register in EU state where you sell.

You have the possibility to register in each and every country you sell in depending on the products and services you are providing. Or you can register for VAT MOSS in the case you provide digital goods to different EU member state.

VAT collection

In case of a local sale (same EU country than the one your business is domiciled in), you have to collect VAT in either B2B and B2C sales.

If you sell to another EU country, you have to collect VAT or not depending of the type of the product you sell, and the type of customer:

  • For B2B sales, no VAT will be collected (reverse charge), if your customer has a valid VAT number. If not, the sale is considered as a B2C one.
  • For B2C sales, your country VAT rate applies in case of standard goods but customer's local VAT rate must apply in case of digital goods.

No VAT applies if you sell outside of EU.

If you are established outside of EU, and you sell digital goods to EU B2C customers, you must register for VAT MOSS and apply customer's local rates for each sale.

How is Octobat handling VAT MOSS?

The EU VAT MOSS rules applies only in case of digital goods sales. Transactions are tagged as digital goods sales in the following cases:

  • When creating manual items in the Octobat web interface, and specifying eservice as product type.
  • When calling our API, and filling tax evidence or item's product_type field aseservice.
  • When none of these conditions are filled, but you don't specify a product type while creating an item or a tax evidence - via API, manual input or automatic synchronziation -, and you filled eservice as the default product type at sign up or later in configuration.

How does Octobat differentiate between a B2B and a B2C transaction?

If your buyer has a valid VAT number, the transaction will automatically be considered has a B2B transaction.

The VAT number of the buyer can be binded as an Octobat fields in Octobat built-in forms and Checkout , and will automatically be verified by our system with the VIES service .
In the case of a cross border sale, no VAT will be collected.

If your buyer has no VAT number, the transaction will automatically be considered has a B2C transaction and VAT will be collected.

Once again, Octobat built-in forms and Checkout are enabling the calculation of the appropriate VAT depending on the customer location and can be added on top of the extra tax price before the payment is charged if requested.

Note that Octobat can work as well without our built-in forms, by calculating VAT after payment, and by splitting the amount charged in extra tax and VAT amounts.
Learn more about direct integration for Stripe and for GoCardless .

How does Octobat validate the location of the buyer?

Selling digital goods requires you to collect and store evidences to prove location of your buyer at the moment of the purchase. Octobat is collecting this evidences for you and stores them for a 10 year period in compliance with regulation.

Octobat is collecting and storing three evidences for each transaction:

  • Address country code
  • IP at the moment of purchase
  • Payment information such as credit card first digits or IBAN country code

Octobat EU compliant invoices

The following information has to be printed in an EU VAT invoice sent to a customer:

  • Merchant name and address.
  • Merchant’s VAT number - if relevant -.
  • Invoice date
  • Invoice sequencing number
  • Buyer’s name and address
  • Applicable VAT for each item
  • Final amount after VAT is added

Octobat invoices contain all necessary information to be EU VAT compliant.