The amendments in the EU VAT Directive (2006/112/EC) concerning the taxation of electronic communications services and electronically supplied services (hereinafter digital services) entered into force on 1 January 2019. The purpose of these amendments is to simplify the performance of the VAT obligations for small enterprises. Thereafter the Estonian Value Added Tax Act was also amended and Article 101 “Place of supply of electronic communications service and of electronically provided service provided to person who is not taxable person or taxable person with limited liability in any Member State” was added to the Act.
According to the amendment, an entrepreneur who provides digital services on a small scale can follow the VAT rules of its own country of residence upon the taxation. Since 2019, the country of residence of the entrepreneur (the provider of the service) is treated as the place of supply in condition that the supply of the digital services, provided to a final consumer located in the other Member State, does not exceed 10,000 euros. It means that until this threshold is not exceeded, an entrepreneur has the right to follow the VAT rules of its own country of residence upon the taxation of the digital services. Hence, until the threshold is not exceeded, the Estonian entrepreneur can tax the digital services, provided to a final consumer located in the other Member State, with the Estonian VAT rate (20%) and can declare such services in Line 1 of its Estonian VAT Return (Form KMD) as the domestic supply.
At the same time, there is the condition that the person has a registered office or permanent business establishment only in its own country of residence (in its home country) and not in any other Member State.
However, an entrepreneur has the possibility to perform the VAT obligations in the country where the consumer resides (it means, not in Estonia) even if its supply of the digital services is less than 10,000 euros. If a person has made such choice, he or she is obliged to follow the correspondent taxation rules of the digital services at least during two calendar years.
If a provider of the digital services already uses the MOSS scheme, he or she can continue the same taxation and the same declaration also after 1 January 2019, i. e. he or she can still treat the country of the residence of the final consumer as the place of supply for all cross-border digital services and do not reckon with the threshold.
If the user of the MOSS scheme whose supply of the digital services is less than 10,000 euros wishes to terminate the use of that special scheme, he or she must fulfill the request termination in the MOSS application (“I wish to terminate the use of the special scheme”). At this point, it is necessary to have in mind that after the termination of the use of the special scheme, the six-month “quarantine period” takes effect for the entrepreneur during which it is not possible to register again as the user of the MOSS scheme.
If the cross-border supply of the digital services exceeds 10,000 euros as calculated from the beginning of a calendar year, the place of supply of the further cross-border digital services is the Member State of the consumption and the entrepreneur is obliged to calculate and pay VAT in the correspondent Member State. Hence, when the threshold has been exceeded, the entrepreneur must choose whether to register for VAT liability in every Member State of the final consumption of the digital services or to join the MOSS scheme for the performance of the VAT obligations, arised in the other Member State.
The principle of the billing upon the use of the MOSS scheme has also changed. Up to now the billing rules of the country of destination had to be followed, but since 2019 a person who uses the special scheme shall only comply with the billing rules of its country of registration for VAT liability.