Global Tax Compliance: EU VAT 2024 News

As the saying goes, "new year, new challenges”, and 2024 is no exception. Starting with the 1st of January, new EU compliance rules will be mandated, ushering in a year filled with fresh regulatory demands.

Luckily, we are not here just to give you the bad news.

We also have the solution to your VAT compliance problem: the Merchant of Record, a real partner in your global growth journey. Check out our guide on what the Merchant of Record represents and how SaaS and software companies can benefit from it.

Let's dive deep into:

• The EU VAT 2024 Change
• Important Facts To Remember About EU VAT Compliance
• 3 Implications For Your SaaS
• 5 EU Compliance Best Practices
• The MOR Solution To Your Problems

The EU VAT 2024 Changes

With less than a few weeks to make the necessary compliance adjustments, it’s time to cut right to the chase and find out what these are.

Before we do that, though, it’s important to make one thing clear.

The European Union value-added tax (VAT) is applied to goods and services within the EU space. So, if you are a US-based business selling software, SaaS, and digital goods in the European Union, you must charge local VAT based on your customers’ location.

Reporting Cross-Border Sales To Tax Authorities

Starting on the 1st of January, payment processors must report cross-border transaction data to tax authorities. This disposition is part of a larger plan to fight international online fraud.

In regard to cross-border online transactions, if you are a US-based software or SaaS business earning more than 25 sales per quarter within the European Union, your payment service provider will now need to log the number in the Central Electronic System of Payment Information (CESOP) database.

This is where data will be stored, aggregated and verified with other existing EU databases. Additionally, all information in CESOP will be made available to EU member states anti-fraud experts.

It's very important to collect and file the correct sales taxes, as these will be verified by the corresponding tax authorities based on the information sent to them by the payment processors, and they should match your own filings.

Important Facts To Remember About EU VAT Compliance

No Minimum Threshold

Unlike the US sales tax regulations, which typically require reaching a minimum of international payments before being financially liable, the rules in the European Union are significantly more intricate.

From the moment you make your first sale within EU territory, you become liable.

In simpler terms, EU VAT non-compliance consequences apply to you regardless of your transaction volume or the country where you conduct your sales.

The One-Stop Shop (OSS) Scheme

Instead of registering and filing into each country individually, businesses selling across the European Union can register for VAT and file VAT returns through the One-Stop-Shop (OSS) scheme.

While switching to the OSS scheme is perceived as a major simplification for businesses operating within the EU, bringing about multiple benefits such as reduced compliance costs or administrative workload, it remains a complex system that should be reviewed carefully.

Reverse Charge Mechanism

In certain instances, when selling to other businesses based in the EU, the reverse charge mechanism comes into play. This is actually a VAT calculation method that switches the responsibility of tax registration and payment from the seller to the buyer. This mechanism is intended to simplify tax management for businesses.

To correctly implement this change, you need to adapt your invoicing system for the B2B transactions where this mechanism applies, indicating when the customer is responsible for VAT.

Read on to learn how to handle it on PayPro Global's Blog.