Invoices and VAT on a domain sale

Two documents matter after a domain deal: proof that the name changed hands, and proof of what was paid for it and on what basis. The second is the invoice, and it is the document that gets requested years later by an accountant, a tax authority or a buyer of the business that owns the name.

A domain sale is generally treated as a supply of services rather than a sale of goods, because what changes hands is a right rather than an object. That classification drives almost everything about the VAT treatment inside the EU.

What the invoice should contain

• Full legal name and address of the seller, and the same for the buyer.
• The seller's VAT identification number where the seller is registered, and the buyer's number for a cross border business sale.
• A unique sequential invoice number and the invoice date.
• The date of supply, which for a domain is normally the date the name transferred rather than the date of the agreement.
• A clear description: the domain name in full, and the words identifying it as a transfer of the registration rather than a service subscription.
• The amount charged, the VAT treatment applied, and the tax amount where tax is charged.
• Where no tax is charged, the reason, stated explicitly rather than left blank.
• Payment details and the reference that will appear on the bank record.

The description line is worth care. An invoice that says only "consultancy" or "web services" is useless as evidence that a specific name was sold, and it is exactly the document a later dispute turns on.

Business to business inside the EU

Where both parties are businesses in different EU member states and both hold valid VAT identification numbers, the supply is normally treated as taking place where the customer is established, and the customer accounts for the tax under the reverse charge. The seller issues an invoice without tax, states the buyer's VAT number on it, and notes that the reverse charge applies.

Two conditions do the work: the buyer's VAT number must be valid at the time of supply, and the seller must be able to show it was checked. Validation results can be saved as evidence, which matters more than the check itself.

Where both parties are in the same member state, domestic rules apply and the seller charges tax in the normal way.

Sales to consumers

A sale to a private individual inside the EU does not use the reverse charge, because the buyer has no VAT registration to charge against. Tax is generally due in the buyer's country for supplies of this kind, and sellers making them regularly usually account for it through a one stop shop registration rather than registering in each country separately.

This is the area where domain sellers most often get the treatment wrong, because the buyer's status is assumed rather than confirmed. Ask for a VAT number before the price is agreed, not after the invoice has been raised.

Buyers or sellers outside the EU

Where the buyer is a business established outside the EU, the supply generally falls outside the scope of EU VAT and the invoice is issued without tax, stating why. Where the seller is outside the EU and the buyer inside it, the buyer usually self accounts. Currency and banking questions on those deals are dealt with in cross border payments.

A private seller is different

An individual selling a name held personally, outside any business activity, is normally not VAT registered and does not issue a VAT invoice at all. What that seller can provide is a simple sale document: names and addresses of both parties, the domain, the amount, the date, a statement that the seller was the registered holder, and both signatures.

Buyers sometimes push for a formal invoice from such a seller and should not, since an invoice showing tax that was never due creates a problem for both sides. A sale document plus the bank record is sufficient support for a purchase.

Keeping the record

Statutory retention periods for invoices run for several years in most jurisdictions, and longer for anything that establishes ownership of an asset. The transfer confirmation, the agreement and the invoice belong together in one place, as set out in documents to keep. Terms appearing on the payment side of the same file are explained in payment terms explained.

Treatment varies by country and by the status of both parties, and an accountant should confirm the position for any deal of consequence before the invoice is issued.