Affiliate income and EU MOSS VAT treatment/Rules
Tax documentation in process of being researched and prepared!
A common question among affiliates in Europe concerns the VAT MOSS rules and how they apply to affiliate income.
If you are a business providing affiliate marketing services to another European registered company that has a VAT number, there is no charge. Since both are companies and both have a VAT number, there is no VAT charged in this B2B transaction.
The major doubt arises when you have companies or freelancers who are below the threshold for VAT registration in countries like the UK, so they don’t have a VAT number. If you are providing affiliate services to these companies or freelancers, you will need to charge VAT to them.
This can be quite annoying as many affiliate systems automatically pay affiliates every month, and they don’t have functionality for MOSS VAT built-in. So what you will need to do is inform the company that you will be issuing a monthly invoice to them with the VAT added on top of the referral income they owe you. They should not have any problem with this arrangement since that is what the law necessitates. If you don’t invoice them and obtain payment, you will be liable to pay the VAT yourself, which is not a good situation.
Now the second question relates to what VAT rate to use when charging advertisers. The answer is that you should use the VAT rate of the country where the advertiser is based. Hence we are using the MOSS VAT rules because affiliate income is classified as an automated digital service.
Hence if you are a Spanish affiliate for a UK-based product seller, and this UK seller does not have a VAT number, you need to charge him UK VAT at the end of the month when you obtain your affiliate payout. Then, you will need to declare the amount collected on your MOSS statement.
Invoicing for affiliates can be a bit tricky. Affiliates themselves don’t usually invoice the product owners. As a blog owner, for example, you can be signed up to over 200 affiliate programs, so creating invoices every month for small amounts would be ridiculously time consuming. Instead, what happens is that affiliate systems such as Shareasale, automatically create invoices for the product owners on behalf of the affiliates. That satisfies accounting requirements without adding overheads to the affiliates. It is important that the product owners obtain all the relevant details from their affiliates as this info will be automatically inserted into the invoices, which are a legal obligation to have in all jurisdictions in Europe as far as I know.