ez-EU - an easy EU VAT solution

What is the EU?

The European Union (EU) is a family of democratic European countries, committed to working together for peace and prosperity.

The EU's member states have set up common institutions to which they delegate some of their sovereignty so that decisions on specific matters of joint interest can be made democratically at European level.

Within the individual member states, much work has been done to ensure harmonisation and standardisation on a number of legislative and judicial issues, including taxation, legal systems, employment law and the free movement of goods across national borders within the member states.

From 2007, the European Union will consist of a total of 27 member states consisting of almost 500 million citizens. Members from 1st January 2007 are as follows:
Belgium, Germany, France, Italy, Luxembourg, The Netherlands, Denmark, Ireland, the United Kingdom, Greece, Spain, Portugal, Austria, Finland, Sweden, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia, Slovakia, Bulgaria and Romania. Croatia and Turkey are also negotiating for membership.

The EU's GDP is roughly equivalent to that of the USA. Within the EU, twelve of the member countries (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia, Slovakia and Greece) now share a common currency in the form of the Euro; other member states currently retain their own currencies.

See the European Union website for more information.

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What is VAT?

The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the Community. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT.

Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union .

Value added tax is

• a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services.
• a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.
• charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
• collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected 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.
• paid to the revenue authorities by the seller of the goods, who is the "taxable person", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.

However, EU member states are at this time free to vary the level of VAT charged within their borders within certain limits, and also the category of goods to which different VAT rates apply. Standard rates within the EU vary between 15% and 25%, although in some countries certain categories of goods are 'zero rated'

See the Europa Taxation website for more information.

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Why do non-EU merchants have to pay EU VAT?

The EU's view is that VAT must be paid at the moment any goods or services are imported into a member state so they are immediately placed on the same footing as equivalent goods produced in the Community.

This includes digital goods and services; under a directive issued by the EU in May 2002, companies that don't have a physical presence in an EU member nation must assess the tax at the rates charged by the countries where individual customers are located. Companies based outside the EU are legally obliged to register with European tax authorities to levy, collect and remit the VAT on online digital sales.

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What is involved in paying EU VAT?

Any non-EU merchant selling digital goods to customers within any EU country should:

• Register with the appropriate tax authority in each of the member states into which goods are being sold (up to 27 different tax authorities)
• Charge VAT to the customer at the appropriate rate for the category of goods being sold (anything between 15% and 25% depending on the customer's home country)
• Account for the tax element of the transaction in all accounting and reporting functions
• Submit payment to the appropriate tax authorities in the language and currency of each member state to which payment is made (15 currencies and 20 official languages)

Some non-EU companies have spent large amounts in developing new software code and accounting routines to ensure they conform to the legislation; others have gone to the inconvenience and expense of setting up EU-based subsidiaries in order to trade with customers in EU nations.

Intecard offers a simple solution that not only presents a simple, tax-inclusive price for online customers in their own home currency, but also deals with all the administrative overhead and tax compliance requirements - at no additional cost to the vendor.

> See Intecard's ez-EU VAT solution