Value Added Tax
Background on the so-called “Croatia Law”
Since January 1, 2015, the so-called “Croatia Law” has been in force in Germany, implementing an EU directive on the taxation of electronic services into national law. The aim of this regulation is to ensure that value-added tax (VAT) on digital services is no longer charged in the country of the provider but in the country of the consumer. This means that providers must calculate and pay VAT according to the local tax rate of the respective consumer’s country.
Before this law came into effect, the “country of origin” principle applied to electronic services — the provider’s location determined the applicable VAT. With this legislative change, the so-called “destination principle” was introduced: the place of supply is now determined by the consumer’s place of residence or habitual location. This change particularly affects electronic services such as cloud services, hosting, streaming, software downloads, or mail services.
To simplify administrative processing, the Mini-One-Stop-Shop (MOSS) system was introduced at the EU level. Through this system, providers can report and pay VAT for all affected EU member states centrally via the tax authority in their home country. Since 2021, this procedure has been expanded under the EU VAT Digital Package to the One-Stop-Shop (OSS). (Deloitte Tax News, Wikipedia)
For consumers, this means that they pay the VAT rate applicable in their own country when purchasing electronic services within the EU. For businesses, however, special rules may apply depending on their tax status — for example, the reverse charge mechanism, under which the VAT liability shifts to the recipient of the service.
To ensure correct tax processing, it is necessary for you to indicate under which country of origin we should classify you for tax purposes. Based on this information, we apply the applicable VAT rate and ensure that the billing complies with European regulations.
Further information can be found in the publications of the Federal Office for Information Security (BSI) and in the expert articles by Deloitte Tax News.
