VAT on Electronic Services

Internet Services to European Customers

Does your company deliver electronic (internet) services to EU individuals? Then your company can be non-compliant with EU legislation without you even knowing it.

On July 1st 2003, the EU adopted a new Directive that changed the EU rules for charging Value Added Tax (VAT) on the supply over electronic networks of software and computer services. These electronic services include Cloud Computing, Web Hosting, Software as Service (SAAS), Social Networks, Software Downloads etc.

Before 2002, electronically delivered services from EU companies were subject to VAT whereas electronically delivered services from non-EU companies were not. The new directive was introduced to eliminate this discriminatory tax treatment and to allow EU companies to compete on equal terms on the European market with foreign suppliers.

Are your clients business or private customers?

With respect to this legislation the following rules apply:

  • When a non-EU supplier sells to business customers in the European Union, the VAT implications will be handled by the acquiring company in the EU under self-assessment arrangements.
  • For the non-EU supplier whose EU customers are non-business individuals, there is an obligation to charge and account for VAT on these sales just as EU suppliers have to do.

This new legislation has quite some impact on non-EU companies that deliver electronic services to European customers:

  1. First they have to determine whether their client is a non-business- or a business customer;
  2. then, if their client is a non-business customer, they have to determine the location of that non-business customer so they can apply the correct VAT charges on their sales;
  3. they have to collect and account for VAT on their sales;
  4. they have to establish within the EU or register as a non-established supplier in the EU;
  5. and lastly, they have to continually comply with all the procedures (quarterly payment and reporting) to meet their obligations as defined by this legislation.

Without a deep knowledge of the EU directives, achieving compliance with EU legislation is a daunting task.

EU VAT Registration and Quarterly VAT Filings

This is where we come in. We will help you set up your Sales Process so as to include the correct procedures for charging VAT. We will take care of the EU registration and we will file the quarterly VAT filing on your behalf.

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