EU telecommunications and broadcasting companies as well as providers of electronic services to EU consumers (B2C) are taxed where the supplier is established.
If the electronic services are provided by a non-EU business, they are taxed where the EU consumers are established or the services are used and enjoyed.
For example, a Luxembourg supplier currently must charge a 15% Luxembourg VAT rate (lowest rate in the EU) to EU consumers regardless where they are established, whereas a Swiss supplier must charge the VAT rate of the EU Member State where EU consumers are domiciled or the services are used and enjoyed—so that the VAT rate can range from 15% to 27% depending on the location.
VAT change effective 2015
As from 1 January 2015, EU businesses and non-EU businesses will be treated equally from a VAT point of view.
Accordingly, telecommunications, broadcasting, and electronically supplied services provided to EU consumers will be taxed where the consumers are domiciled—regardless of where the suppliers are established.
For example, a Hungarian customer will pay 27% Hungarian VAT on the received services whether it is provided by a Luxembourg or a Swiss supplier.
Along with the change of the place-of-supply rules, a “Mini One Stop Shop” will be introduced, giving both EU suppliers and non-EU suppliers the possibility to register for VAT in a single EU Member State through which they will account for VAT on services to customers in other EU Member States.
For B2B services, the rules will not change—they are and will be taxed in the EU Member State where the recipient is established (reverse-charge mechanism) regardless of whether the supplier is established in the EU or not.
Beginning 2015, there will no longer be a VAT disadvantage for businesses providing B2C services to EU consumers established in Switzerland. Because of this change, EU businesses may want to reconsider establishing their businesses in Switzerland for various reasons.
Read a July 2014 blog posting by the KPMG member firm in Switzerland: EU VAT rules change in 2015: Establishing your business in Switzerland?