The joy of taxes! Not only do you have to levy them, you have to report them. Merchants will be required to register for VAT in all EU countries where they sell a digital service. With VAT, you’ll thankfully have registration filing options, but you may want to review your product pricing strategy before choosing.
Let’s start with the two options.
Merchants can individually register for VAT in each of the 28 EU countries.
Merchants can register for VAT with one application through the Mini One-Stop Shop (MOSS) system.
Option 1: Merchants individually select and register in every EU member state where the business has non-taxable (non-business) customers. Choosing this option can potentially mean registering with 28 separate tax authorities, each with their own tax system and can present numerous logistical, legal, financial and language obstacles.
Advantage: Choose where you want to do business and get faster repayments of incurred VAT.
Disadvantage:Depending on where transactions occur, this could require individually registering in up to 28 member states.
Option 2:The company selects one EU tax authority with which to register, and the tax authority will then allocate the relevant VAT to the EU countries in which the company’s sales took place. Companies registering with MOSS are required to file quarterly VAT returns for all of their EU sales.
Advantage:Complete one quarterly VAT return and ensure compliance for all your EU sales.
Disadvantage: You’ll have 20 days from the end of each quarter to report and file your return and ensure the supporting data is accurate.
Where Pricing Strategy Comes In Now that you know about the VAT registration options, it may be a good time to review pricing strategy for your services, and which is the best approach: differentiated pricing vs. blended rate.
As you evaluate where you conduct transactions in the EU, you may notice a concentration of specific member states where most if not all of your transactions occur. In this case, you want to consider a differentiated pricing approach. This involves setting up individual pricing based on each member state’s VAT rate in order to maximize profit margins.
On the other hand, you may conduct transactions in most, if not all, of the EU member states. From a practical perspective, a universal or blending pricing approach where the same price is applied in all states would be easier to manage. With varying VAT rates, keep in mind that universal pricing may mean you’re not maximizing margins.