Most goods and services sold to EU end-users are subject to value added tax (VAT). In particular, electronically supplied services are “VAT taxable” under EU VAT rules and both EU and non-EU businesses must collect VAT on behalf of end-users.
This series explains how we use Stripe payments (down to API usage level) to meet our legal obligations with regard to EU VAT, and the changes (simplifications) introduced in EU VAT rules in 2019.
The first part gives an overview of the legal obligations and how they changed in 2019.
This entry belongs to a series of posts on EU VAT + invoicing requirements and (credit/debit) card payment + fulfillment using Stripe:
- legalities
- initial pricing and data capture
- computing the location of supply
- transactional payment and fulfillment
Location rules
Since 2015, the EU VAT location rules for telecommunications, broadcasting and electronically supplied services (TBE) determine that VAT is due in the place of consumption, i.e. the member state where the consumer is located (as opposed to where the seller is, as happened before). Businesses register in the Mini One Stop Shop (MOSS) of a member state and report VAT collected throughout all EU sales at once via the MOSS instead of registering and filing VAT reports for each member state.
Consumer location is determined in general using 2 non-conflicting pieces of location evidence. This is the evidence we have access to:
- self-reported billing address
- location of bank which issued the credit card used for payment (obtained from Stripe, see below)
- IP address: we have both the one observed by our server at purchase time, and the one used when providing the credit/debit card data (again, from Stripe)
The evidence used to determine where VAT is due must be kept for 10 years.
Since January 2019, a single piece of evidence is sufficient if the business sells under 100000€ in cross-border TBE sales per year across the EU, as long as the evidence comes from a third-party (i.e. it is not provided directly by the supplier or the consumer). This further restricts the readily usabable evidence usable down to the these:
- IP address used when providing card credentials, provided by Stripe. Note that the “not provided by the supplier” rule precludes using the IP address detected by our server directly if it is to be used as the single piece of evidence (it’s OK if we use two), we need a third party (Stripe) to give it
- credit card (bank) country: also obtained throughout the payment process (see below)
Now, using a single piece of evidence instead of two sounds like a great way to simplify your code if you’re below the threshold, but the fact is that there is no single piece of evidence that allows you to determine exactly the VAT rate that applies anyway.
The reason is that in addition to VAT rates differing in each member state there are are number of territories related with EU countries where EU VAT rules do not apply. There are also a few countries and territories that do not belong to the EU yet are subject to EU VAT (e.g. Monaco is not an EU member, yet is treated as a territory of France for VAT purposes).
While the single-evidence rule (again, when under 100000€ of revenue throughout the EU) may keep you in the clear, if you want to keep customers satisfied it is a good idea not to charge VAT when none is due, even if all your prices are VAT-included. A disgruntled customer could cost the sale or worse, valuable support time or even a chargeback attempt – remember elevated chargeback rates might even kick you out of Stripe services!
So it is best to supplement the “hard” evidence in the form of IP address or credit card bank with the billing address and postal code, which you probably require anyway for invoicing reasons.
Invoicing rules
This is the most easily explained and most welcome change introduced in 2019: you now abide to the invoicing rules of the EU country you’re based on (or whose MOSS you’re registered with). So if you’re a French company selling to Italian customers you need to follow French law with regard to invoicing.
An important corollary is that if you’re based in a Eurozone country, you can express the payable VAT amount in euros (EUR) instead of in local (to the consumer) currency using official ECB exchange rates as before.
Each member state has got different rules regarding whether invoicing is actually required or if simplified invoices can be used (there is normally a threshold for this) – the European Commission (EC) has published a series of reports that summarize these rules for each member state.
There are however basic EU-wide invoicing rules that determine the information invoices are legally required to contain. So if you include the following you will be alright no matter the country:
- date
- invoice number (serial number)
- your business info (name and address)
- customer name and address
- description of services, unit prices and quantity/extent of service rendered, plus VAT rate applied
- breakdown of VAT amount payable by VAT rate
- for EU business customers, your invoice must not include VAT. You need to specify the customer’s EU VAT registration number and the magic words “Reverse charge as per art. 44 & 196 - Dir 2006/112/CE”
In order to optimize UX when simplified invoices are allowed (refer to national law or the EC summaries), you can omit the customer name and address.
Another thing that is often overlooked is the rounding rules for payable VAT amounts. Some countries like the UK have specific rules and guidance on how to perform rounding. You now need only know the rules for the member country you’re based in.