This post focuses on some basics: what is the difference between B2B clients and B2C clients and how are they dealt with within EU VAT B2C law?
B2B (business-to-business: commercial transactions between businesses) are all legal persons and B2C (business-to-consumer: the sale of finished product) are all natural persons/private individuals.
Simply put: B2B (business-to-business: commercial transactions between businesses) are all legal persons and B2C (business-to-consumer: the sale of finished product) are all natural persons/private individuals.
As with all things VAT, unfortunately, it isn’t that simplistic.
The EU, in its efforts to explain where to tax, has produced this definition:
“The place of taxation is determined by where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service. A distinction must be made between a taxable person acting as such (a business acting in its business capacity) and a non-taxable person (a private individual who is the final consumer).
As of January 1, 2015, (details here), if a company is providing digital goods to a consumer in an EU member state then the VAT rate of the consumer’s country is applied (list of EU VAT rates here, as of January 1, 2017).
The rules for electronically supplied services varies from B2B; to B2C for a EU-based company and to B2C for a company providing the service from outside the EU.
The VAT system goes like so:
- The normal B2B place of supply rules for electronically supplied services apply to all such supplies where the recipient is established in an EU member state. The rules provide that the place of supply is the place where the business customer has established their business. The reverse charge rule applies, under which the business customer must account for the VAT.
- The EU VAT B2C place of supply rule for electronically supplied services supplied by an EU business to a private consumer in the EU is the EU member state in which the consumer is located.
- The EU VAT B2C place of supply rules for electronically supplied services provide that where a non-EU business supplies to a private consumer in any EU Member State, the place of supply is the place where the consumer normally resides. For example, if a US business supplies electronic services to an Irish consumer the place of supply and, therefore, taxation is Ireland.
Suppliers of these services are liable to register and account for VAT in every EU member state where they have private customers. However, an optional special scheme is available whereby non-EU businesses can register in one EU member state only.