There have been many practical implications for businesses since the updates to the EU’s e-commerce VAT rules in July 2021. With all remote sales to consumers now being taxable for VAT in the country of destination where the consumer resides rather than where the supplier was based, customer location determination has become a critical factor.
This means it’s essential that you’re able to determine customer location accurately to apply the VAT rates and rules applicable to the customer’s member state. When there are 27 member states plus the UK, each with their own rules, this can become complicated. That’s not counting all the rules introduced by the other countries around the world, including the different states in the US.
What’s more, determining your customer’s location can be challenging for digital sales, when you’re not shipping goods to a physical address. You’ll need to consider what data to capture and what to do if different pieces of data conflict. The address on a customer’s credit card, for example, may not match their IP address location.
An added complication is that establishing customer location for digital sales must be done in real time and may require extra information. You may also need to be able to do currency conversions at the point of accepting payment and be able to perform several conversions simultaneously.
Our research confirms businesses find this complicated with 51% saying the increasing need to perform VAT/sales calculations and charging at the digital point of sale is greatly impacting their ability to grow with confidence.
Nonetheless, customer location determination is a requirement which is not going to go away. So, make sure you put in place a robust system to enable you to gather all the relevant information on your customers. That way you can be confident you’re applying the correct rates and rules on each sale and that you are compliant. You will then be able to think about expanding sales into new territories with confidence.