New VAT Rules for Online Services in the EU Starting January 2025: What You Need to Know

From 1 January 2025, the VAT rules for online services and entertainment within the EU are changing. If you offer online classes, workshops, or digital entertainment to customers in different EU countries, these changes will impact how you charge and report VAT.

In this post, we’ll explain:

1. What’s changing in VAT rules for online services.

2. Who these changes affect.

3. How to comply with the new requirements.

4. A clear example for businesses offering services like online yoga classes.

What’s changing?

From 1 January 2025, VAT on online entertainment services will be based on the country where your customer resides, not where your business is located.

Examples of affected services include:

• Online yoga classes

• Online fitness sessions

• Webinars or virtual events

• Streaming of live performances

If you provide these services to customers across multiple EU countries, you will need to:

1. Charge VAT at the rate applicable in each customer’s country.

2. Report and pay VAT to the relevant EU countries.

Who does this affect?

hese changes impact:

• Entrepreneurs or businesses based in the EU providing online services.

• Anyone selling virtual events, classes, or digital entertainment to customers in other EU countries.

Even if your business is small, you will need to comply if you operate cross-border.

How to Comply: VAT Options for Businesses

To comply with these new VAT rules, you have two options:

1. Register in Each Member State

You can register for VAT in each EU country where you have customers. However, this can be time-consuming and complex for small businesses.

2. Use the VAT Union Scheme

A simpler option is to use the Union VAT Scheme, also known as the One-Stop Shop (OSS). Here’s how it works:

• You register for the Union scheme with your own country’s tax authority (e.g., in the Netherlands).

• You report and pay all foreign VAT quarterly through a single VAT declaration.

• The Dutch Tax and Customs Administration will then distribute the VAT to the appropriate EU countries on your behalf.

The Union scheme streamlines VAT compliance and helps businesses manage cross-border sales efficiently.

Example: You provide online yoga classes in the EU

Imagine you’re a Dutch entrepreneur offering online yoga classes to customers in Spain and France.

• Your Services: Live virtual yoga classes provided via Zoom.

• Your Customers:

  • 10 customers in Spain (€15 per class).

  • 15 customers in France (€15 per class).

Here’s what you need to do:

1. Charge VAT Based on the Customer’s Country:

   • Spain: VAT is 21%

   • France: VAT is 20%

2. Calculate the VAT:

   • For Spain: €15 x 21% = €3.15 VAT per class

   • For France: €15 x 20% = €3.00 VAT per class

3. Report VAT via the Union Scheme:

   • You submit a single quarterly VAT declaration through the Union scheme in the Netherlands.

   • The Dutch tax authority distributes the VAT (€3.15 per class for Spain, €3.00 per class for France) to the respective countries.

Example Calculation for One Quarter:

• Spain: 10 customers x €3.15 x 4 weeks = €126 VAT

• France: 15 customers x €3.00 x 4 weeks = €180 VAT

• Total VAT payable via the Union scheme = €306

The new rules ensure VAT is paid where the service is consumed, aligning with EU tax policies. This surely adds an administrative step, but the Union VAT Scheme simplifies reporting for businesses, especially those with cross-border customers.