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.
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.
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.
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:
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.