VAT on software is typically charged in the Buyer’s country, though it can be paid in The Netherlands via the VAT return.
Electronic services (such as software) are subject to VAT levy in the country of the customer or user. This has been the case since 2010 for electronic services to other entrepreneurs (B2B services), and it now also applies if the customer is a non-entrepreneur (the B2C services). The provider must ensure that the customer’s country can be determined unambiguously via the website where the service is offered.
The Customer Is An Entrepreneur
Electronic services to entrepreneurs are taxed in the customer’s country. The provider must be able to determine whether there is an entrepreneur so that when creating an account, the customer can identify himself using a VAT identification number or other characteristics. Furthermore, the provider of the electronic service must recognise that an invoice that has been properly drawn up should be made available online.
If a Dutch entrepreneur is involved, a Dutch VAT of 21% is due (heading 1-a of the VAT declaration). There are currently no services that are subject to the reduced VAT rate in the rest of the EU’s member states. There are lower rates in some cases, such as the reduced rate for e-books. But according to the European Court of Justice, this is not correct. On the other hand, the European Commission is currently investigating whether reduced rates for digital products can be implemented.
The VAT for a customer within the EU has been transferred to the customer’s VAT identification number. The turnover must be specified in section 3-b of the VAT return as well as in the ICP Declaration (column services). The reverse charge mechanism should be referenced in the digital invoice (for example, “VAT reverse charged” or “VAT reverse charged”).
Finally, an entrepreneur operating outside the EU is not required to pay VAT. The turnover does not have to be declared in the VAT return, including section 3-a. This section is for goods exported to countries outside the EU. You can indicate on the digital invoice that no VAT is due (for example, “non-VAT taxable for EU purposes” or “out of scope EU VAT”).
The Customer Is A Non-Entrepreneur
If a Dutch private individual is involved, a Dutch VAT of 21% is due (heading 1-a of the VAT declaration). As previously stated, a reduced VAT rate on electronic services is not yet possible.
VAT is due in the customer’s EU Member State if the customer is located within the EU. As a result, the digital service provider must determine and pay the applicable VAT rate. In general, the relevant EU Member State’s VAT number is requested, and a local declaration is submitted. VAT is already payable beginning with the first euro. As a result, there are no threshold amounts, as there are in the distance selling scheme (selling goods to private persons in another EU Member State via the internet). To prevent every provider from registering directly in all EU member states, the Mini-One-Stop-Shop system, or MOSS for short, can be used.
The tax office in Heerlen can then file one tax return and pay all VAT due in one payment. The tax office in Heerlen ensures that VAT is paid to the appropriate foreign tax authority. It is critical that the entrepreneur understands that other deadlines apply for the MOSS declaration (the declaration period is 20 days after the end of a quarter). In the event of repeated non-compliance with MOSS obligations, access to MOSS may be denied, and the entrepreneur will still be required to register in other EU Member States.
Please remember that VAT paid in other EU member countries cannot be deducted as input tax from the VAT due in the MOSS declaration. For this digital refund procedure, the entrepreneur will need to use a separate one. A non-EU customer does not owe VAT to the digital provider. The turnover does not have to be declared in the VAT return. As previously stated, not even in section 3-a of the VAT return.