Virtual services and VAT: new rules as of 1 January 2025
VAT rules for certain ‘virtual services’ in the EU are about to change. This will affect services such as live-streamed cultural events and paid webcam sessions, for example. The new rules to determine the place of supply take effect as of 1 January 2025. Our experts explain exactly what these changes mean and how they will affect entrepreneurs. We also give pointers to prepare properly.
VAT within the EU: rules for services and cross-border transactions
Many aspects of VAT are regulated centrally in the European Union (EU). For example, the rules about which country may levy VAT on cross-border transactions. For services, the rules are designed to prevent double taxation.
VAT is usually levied in the country of consumption. This also aligns with the underlying idea of VAT: we prefer to charge VAT where the goods or services are consumed. That makes determining the place of supply crucial to determine which VAT rules apply.
Compared to most supplies of goods, it is more complex to determine the place of supply for services. The nature of a service is not always easy to determine. There are also many special rules and exceptions that apply to services.
Specific rules for cultural services
The VAT system has specific rules to determine the place of supply of cultural services. This includes (access to) cultural, artistic, sporting, scientific, educational or entertainment services.
Under the current rules, the country where the event or activity actually takes place is entitled to levy VAT. In the case of cultural services offered virtually, it is more difficult to apply this rule: how do you determine exactly where an online event takes place? There is a lot of ambiguity around such questions. This has previously been litigated as far as the European Court of Justice.
New approach for virtual services
The new rules, which take effect as of 1 January 2025, include a separate approach for cultural services that are streamed or made available virtually. In essence, this approach seeks alignment with the place where the buyer is established or resides. As a result, the levy takes place in the country of consumption. This also prevents complex technical issues regarding the location of a supply.
Who will be affected by the changes?
The changes affect the VAT treatment of specific virtual services, primarily within the e-commerce sector. Companies in that sector need to assess the impact properly. But take note: even in other sectors, companies offering virtual services should pay close attention to the changed rules.
In some cases, it may turn out that the virtual service takes place in another country for VAT purposes. This can sometimes mean that local VAT must be charged and other obligations apply. Determining the place of supply is crucial for a correct calculation of VAT. Incorrectly charging VAT (in the wrong country) can lead to additional obligations, additional assessment, and fines.
Make sure your company is properly prepared
We advise companies to consider the impact of the new legislation on VAT administration and compliance (filing processes) in good time. In many cases, providers of virtual services will have to adjust their ERP configurations and invoicing processes. Our advisors would be happy to help you assess whether this new legislation has consequences for your company.
Do you have any questions about the new rules? Or do you need help in analysing and implementing the necessary changes to your invoicing or systems? Please contact our Partner and VAT specialist Anna Vilka!
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
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