New European E-commerce VAT rules 

We wish to inform you about the tax implications of the "VAT and E-commerce Directive" for non-European Union suppliers of broadcasting and electronic services who supply such services to private individuals and other customers that are not registered for VAT. This Directive will mostly effect U.S. Company's licensing software to European customers. You will be required to charge, collect and remit European VAT on your sales to certain European customers. We can assist you with these requirements.

VAT and E-Commerce Directive

The Directive will take effect starting on July 1, 2003.
It requires all non-European Union suppliers of electronic services to charge and account for VAT on all sales to private individuals and other customers that are not registered for VAT and are resident in the European Union, even though such suppliers have no place of establishment in the EU.

Under current law, such services are treated as supplied where the supplier belongs. This means that non-EU suppliers do not have to charge VAT whereas EU suppliers must do so.

Under the new regime, electronic and broadcasting services will be treated as supplied in the country where the customer belongs, meaning that, for example, a US supplier of downloadable software to a private individual in the Netherlands, will have to charge 19 per cent Dutch VAT in addition to the sale price.

The US supplier will be required to register with the Dutch Ministry of Finance and account for VAT on the sale.

IMPORTANT:The VAT rules for non-EU suppliers selling to business customers in the EU will remain unchanged, with the VAT paid by the importing company under self-assessment arrangements.

Impact

The new measure has an impact on all businesses that are based outside the EU that provide digitally downloaded products and services to private consumers in the EU.
That includes companies that offer things like Web-hosting, ASP services, sales of downloadable software and upgrades, the sale of electronic books, streaming music, digital movies, computer games and even distance learning services.

Theoretically, if a non-EU supplier makes supplies to private individuals in all fifteen Member States, it will be required to file VAT returns in all member states.

To prevent heavy administrative burdens non-EU businesses are allowed to register in one Member State only. Those companies must however charge the VAT rate applicable in the country where the customer is based.

IMPORTANT: Non-EU suppliers of electronic services to private individuals in the EU are required to register with a VAT authority in any one Member State of their choice, and to levy VAT at the rate applicable in the Member State where the customer is resident.

Details of the VAT charged in each Member State will be entered on quarterly returns and then allocated by the state where the supplier is registered to the Member States where the charge arose.

Measures To Be Taken

Because of the new VAT rules, non-EU suppliers of electronic services must consider the VAT-consequences of those services:

• Non-EU suppliers must determine whether they are dealing with private individuals (or other non-registered customers) or businesses;
• If dealing with private individuals, the non-EU supplier must determinate the EU Member States in which the individuals reside, in order to apply the relevant rate of VAT;
• If dealing with private individuals, the non-EU supplier must register for VAT in one of the EU Member States and submit and file quarterly VAT returns. The supplier may choose to appoint a tax representative;
• If dealing with business customers, the supplier needs to ascertain the VAT numbers of the businesses;
• Non-EU suppliers may wish to consider to choose for a permanent establishment in an EU Member State with a lower rate of VAT.

Find out how our expertise in international tax law can add value to your business. Email us or call us at 1 (888) 875-9770.

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