Effective January 1, 2015, there are important changes related to how European Union Value-Added Tax (EU VAT) is collected for merchants selling digital services to customers in Europe. Luckily, Chargify has partnered with Avalara, and our AvaTax integration makes adopting these new rules easy. If you sell digital services to customers in Europe, read on to make sure you are compliant in 2015.
What are the new EU VAT rules?
Prior to the upcoming change, VAT in Europe was calculated based on where your business was established. So if your business was in the UK, qualifying taxable sales would all be taxed at the UK VAT rate. With the new 2015 rules, you must charge the VAT rate based on your customer’s location IF 1. you are selling a digital service and 2. your customer is a consumer (not a business exempt from VAT). With 28 countries and VAT ranging from 15% to 27%, collecting taxes becomes more complicated. Learn more about the new rules.
How to be compliant in 2015
Recently, Chargify partnered with Avalara to offer effortless tax management in the United States and Canada. We have expanded our integration to include Europe and the new EU VAT rules. If you sell digital services in Europe, visit the Setup tab, Taxes subtab within Chargify to setup the EU Avalara tax integration. Please see our documentation for step by step instructions. Once configured, Chargify will automatically calculate and bill the correct VAT based on the customer’s location.
In addition to the tax rate changes is an address verification requirement – when selling digital goods, you must collect at least two pieces of non-conflicting proof of a customer’s location. Example include:
- Billing Address
- Shipping Address
- Internet Protocol (IP) Address
- Credit Card Issuer Identification Number (IIN)
Beginning in January 2015, Chargify will collect the IP address of the customer and the credit card issuer identification number. We will compare these pieces of information to the shipping or billing address (depending on your settings) provided by your customers, and we will be adding an interface that will list any discrepancies in our findings. Note that signups will NOT be prevented if the provided information results in a conflict.
If you have any questions about the new EU VAT rules or configuring Chargify, our support team is happy to help out.