The EU directive on VAT and E-Commerce is due for implementation across Europe by 1 July 2003. Osborne Clarke’s tax guru Erica Jupe picks out some of the key points for those selling online.
The EU has adopted a controversial directive dealitroversial directive dealing with the VAT treatment of "digitised services". "Digitised services" include supplies of computer games, information, music, tv and radio in electronic form, as well as web design and web-hosting.
The directive is intended to create a level playing field for EU and non-EU businesses competing in the B2B and B2C market places to supply such services.
What will change?
The new directive will mean that EU based suppliers are no longer required to charge VAT on "digitised supplies" made to customers based outside the EU.
However, non-EU suppliers will be required to charge VAT on supplies of digitised services made to private customers in the EU. (Supplies to business consumers will be dealt with under the "reverse charge" mechanism). Non-EU suppliers will be required to register in a single EU jurisdiction (the "Member State of Registration") and charge VAT to private customers at the rate prevailing in the consumer's state of residence ("the Member State of Consumption"). The VAT will then be remitted from the Member State of Registration to the Member State of Consumption.
The new rules come into force from 1 July 2003.
What happens next?
EU and non-EU based suppliers will need to ensure that are able to determine where their customers are "resident" for the purposes of the new rules. In the UK Customs and Excise is consulting with business to determine how this can be achieved. Once the guidelines are finalised, suppliers will need to ensure that their websites comply with the guidelines and allow them to collect the relevant customer information.
Non-EU suppliers will also need to consider whether they need to register for VAT in the EU and how practically they can comply with the new legislation.