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Taking advantage of the EU VAT Directive with our Internet delivery solutions
» What is the EU
E-Business Directive
» Does
it affect you?
» What
activities fall within the Directive?
» About
VAT
» EU VAT
Registration
» The
advantages of establishing a Subsidiary within the EU
» Setting
up a solution with one of our offices
» How
to proceed
The EU "E-Business Directive" (Council Directive 2002/38/EC) came into
effect on 1st July 2003. The effect of this directive is to implement
the imposition of VAT in on Internet delivered information or services
within the EU. This amounts to a tariff of between 13 and 25 per cent
on items such as software or music downloads, any transactions as part
of online auctions and subscriptions to internet service providers, sold
over the internet anywhere within the European Union.
This Directive applies to non-EU companies and thus if your company is
based outside the EU and providing Internet delivered information or services
within the EU you should read this as failure to register and account
for VAT could render you or your company liable to criminal prosecution
for tax evasion, money laundering, false accounting or similar offences.
The Directive applies to the following activities:
- Radio or television broadcasting services solely broadcast over
the Internet or a similar electronic network.
- Electronically supplied services, i.e. Website supply, web-hosting
or distance maintenance of programs and equipment.
- Software and software updates.
- Electronic images, text, information or databases.
- Music, films, games and webcasting of events.
- Distance teaching of an automated nature.
Whilst the following activities fall outside of the Directive they create
VAT issues:
- Soliciting and/or taking orders.
- Issuing invoices to customers.
- Procuring goods and services.
Value Added Tax (VAT) is a general consumption tax assessed on the value
added to goods and services.
It is a general tax that applies, in principle, to all commercial activities
involving the production and distribution of goods and the provision of
services. It is a consumption tax because it is borne ultimately by the
final consumer. It is not a charge on companies. It is charged as a percentage
of price, which means that the actual tax burden is visible at each stage
in the production and distribution chain. It is collected fractionally,
via a system of deductions whereby taxable persons (i.e., VAT-registered
businesses) can deduct from their VAT liability the amount of tax they
have paid to other taxable persons on purchases for their business activities.
This mechanism ensures that the tax is neutral regardless of how many
transactions are involved.
Non-EU vendors must register for VAT in one of the European Union Member
States.
The VAT authorities of the Member State in which the Non-EU vendor has
registered will remit VAT collected to the states in which sales have
been made.
The rate of VAT and rules relating to VAT vary from state to state. Sample
rates of VAT:
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Madeira |
15% |
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Luxembourg |
15% |
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UK and the Isle of Man |
17.5% |
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Sweden |
25% |
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Denmark |
25% |
The home address of every customer will need to be obtained, the rate
of VAT applied will be dependent on that information and records would
have to be maintained for the VAT authorities. Establishing the location
of all customers and their VAT status could be an administrative nightmare.
Mike Lambourne, VAT director at accountant Ernst & Young, says: "The
EU directive is quite specific about what hoops a company must jump through
to qualify for single registration. It can't be just a brassplate operation."
An option for Non-EU vendors lacking an EU subsidiary or a fiscally inconvenient
EU subsidiary is to establish a subsidiary in a Member State where VAT
is low or there exists other fiscal or operational advantages.
The establishment of a subsidiary within the EU circumvents the need to
clarify the location of each customer as local VAT regulations would apply
and the subsidiary would be regarded as a normal EU enterprise.
All our solutions are provided by OCRA Worldwide offices, each of which
has practical experience in implementing solutions for EU VAT and Internet
Delivery.
Madeira
Madeira, where we employ over 40 staff, with a VAT rate of 15%, an
attractive fiscal regime and appropriate Internet infrastructure and
bandwidth provides an attractive option.
Virgin.net and Freeserve have already opened offices on the island,
and BT is looking at moving Openworld, its internet service, to Madeira
next year. A clutch of other websites, companies and even some American
universities are now planning to set up on the Island.
Freeserve opened premises in the capital Funchal for it's Anytime
operation late last year, and is now understood to be paying €
2 m to the Portuguese government in VAT each month. Freeserve is now
paying less VAT per product sold than AOL, which has opted for single
registration in Luxembourg, where the VAT rate is two percentage points
higher.
Luxembourg
AOL and Amazon have business units in Luxembourg, which has one of
the lowest rates of VAT in Europe at 15 per cent.
Luxembourg benefits from a stable political and financial situation
and a highly skilled and multilingual workforce, many international
e-commerce companies are already transferring or are considering transferring
their e-commerce activities to Luxembourg, which will give them a
considerable competitive advantage.
Isle of Man
The Isle of Man has benefited from long-term political and economic
stability. By relocating your e-business to the Isle of Man, you can
benefit from low rate of taxation, as well as VAT and customs unions
with the European Union. The Island has an excellent communications
network. E-businesses that relocate to the Isle of Man may also be
eligible for government grants.
UK
VOES ("VAT On e-Services") is a special VAT scheme for non-EU businesses
providing electronically supplied services to EU consumers (that is,
private individuals and non-business organisations). The scheme provides
an optional, simplified means of registering and accounting electronically
for EU VAT with effect from 1 July 2003. To prevent the need for such
non-EU businesses registering in every EU member state where they
supply customers, this special scheme allows them to register and
account for EU VAT in a single EU member state of their choice.
If you are interested in exploring how your business can take advantage
of OCRA Worldwide's EU VAT and Internet Delivery Solutions you should
contact one of our consultants below.
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GROUP FINANCE DIRECTOR
Brian Monk
Brian Monk is a member of the Institute of Chartered Accountants of Scotland and a graduate of Glasgow University. He joined the Group in 1996 having held equivalent positions in professional organisations in the United Kingdom. He is based in the Isle of Man. He specialises in matters relating to trusts, UK property ownership and EU trading.
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+ 44 (1624) 811020 |
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monk@ocra.com |
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LEGAL COUNSEL,
DIRECTOR
Dra. Elita Correia Amaral
Educated in the UK and a law graduate from the University
of Lisbon where she also took a postgraduate degree in European
Studies. Having started out as a legal counsel to Madeira
Management was appointed director in 1995. A member of the
International Tax Planning Association.
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GROUP DIRECTOR
Stephen Porter
Stephen Porter is Group Director, a Director of OCRA
(Isle of Man) Limited and a Client Service Team Leader
in the Isle of Man. He joined the Group in 1989. He
specialises in working with European and international
entrepreneurs and professional firms in the Isle of
Man.
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+ 44 (1624) 811008 |
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+ 44 (1624) 811088 |
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+ 44 (7624) 481234 |
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porter@ocra.com |
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MANAGING DIRECTOR
Jonathan Dixon
Jonathan Dixon joined the Group in 1995 and specialises in the structuring of international companies for global trade and investment. Jonathan also maintains close relationships with selected banks and our intermediary network and is available to personally meet with clients to discuss their requirements.
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+ 44 (0) 20 7317 0600 |
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+ 44 (0) 20 7317 0610 |
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+ 44 (0) 7766 885626 |
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jdixon@ocra.com |
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BUSINESS DEVELOPMENT,
DIRECTOR
Julian Beardsley
Julian Beardsley joined the group in 2006 as Director of Business
Development with extensive previous experience in major Accountancy and
Fiduciary Companies in the UK. Julian is responsible for Intermediary
Client Business in Europe and Product and Solutions Development.
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+ 44 (0) 20 7317 0600 |
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+ 44 (0) 20 7317 0610 |
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+ 44 (0) 7810 698151 |
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beardsley@ocra.com |
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