EU Sales Tax Headache Looms for US E-Tailers on July 1
On July 1, new European Union regulations regarding the Value Added Tax (VAT) are set to take effect. Analysts and VAT experts say the new measure will have an impact on all U.S.-based businesses that provide digitally downloaded products and services to consumers in the EU. And 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. Suppliers outside the EU will have to charge the VAT rate (a levy that is something akin to a sales tax) in the EU country where the consumer resides. PricewaterhouseCoopers has set up an informational EBusiness Toolkit Web site to help American and other non-EU e-commerce and ASP operators gain more little understanding about the issues involved. The new law means that companies based in the United States will in effect be forced to raise prices for European buyers - and more than just a little. The VAT rates vary widely in the European Union. They vary from 15 percent in Luxembourg to as high as 25 percent in Denmark and Sweden - which is much higher than the 5 to 8 percent sales tax that American consumers pay. Currently only EU businesses in the 15 member countries (with a further 10 to join the EU by May 1, 2004) have to charge VAT, according to Fay. But from July 1, all businesses will have to comply with this new ruling. Suppliers outside the EU will have to charge the VAT rate in the EU country where the consumer resides. These rules only apply to downloaded digital content supplied by non-EU suppliers to consumers based in the EU. It does not apply to hard goods ordered from non-EU suppliers which are delivered by traditional means. Digital B2B sales over the Net are excluded as these are taxed for VAT on what is called a reverse charge basis. In other words the EU-based business customer self assesses the VAT liability in its VAT returns. The U.S. based supplier will not therefore have to register or charge VAT in respect of business to business sales. [Full story: EU VAT: a New Tax Headache for E-Commerce - Ecommerce News]
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