ez-EU - an easy EU VAT solution

There are five different ways for a non-EU based company to handle its VAT liability, listed below as least beneficial to best:

1. Do nothing
2. Use your current agreements and add the VAT in dollars
3. Use you current agreements if multi-currency enabled, add VAT and convert entire amount into local currency
4. Set up an EU subsidiary
5. Have Intecard set up a Cyprus subsidiary for you

Do nothing; ignore the VAT liability on the basis that it would be difficult (or price-restrictive) for the EU countries to bring legal cases to recover the tax due.

This is the most dangerous – and expensive – choice. The VAT amount is a considerable part of the overall sales price (at an average of 20%), so the indebtedness mounts up rapidly – particularly when fines and interest are included.

A further significant risk is involved in this scenario, namely anti-competition law suits being filed by compliant, tax-paying companies who are disadvantaged by such non-payment. This can create triple damages awards, along with additional fines.

• Advantages: no work to do, low price to consumer
• Disadvantages: high risk of fines, law suits, audit report failure

Use current credit card processing agreements and add the VAT in dollars on each transaction.

Intecard can assist in this regard with its price adjustment calculator (PAC), showing the multiple the merchant should add to the selling price by VAT rate in each country. The merchant can choose whether to submit the VAT to each of the 27 EU countries’ tax offices, or can arrange to make payments through a special scheme where all funds are paid to one country.

However, the reporting has to be by country, in the local language, and must be made in either euros or the local currency. Any further weakening of the US dollar or vendor's home currency between the time the sale is made and when euros are bought for the VAT settlement will also create foreign exchange losses for the merchant.

Intecard makes no charge for the PAC, as this is solely an information service for our members. It should be noted that the PAC will vary by the processing cost on the VAT portion as well as by the VAT portion itself.

• Advantages: no new processing or corporate entity; is compliant
• Disadvantages: high cost to consumers (up to 25%); 27 different country reports; no multi-currency conversion for consumer satisfaction

Use current credit card processing agreements, if they are multi-currency enabled, adding the VAT and converting the whole transaction into local currency.

Intecard will supply the merchant with the conversion price into euros, pounds or any other EU currency, including the VAT and processing costs into the rate, based upon the VAT rate of the domicile of the customer.

The merchant will be able to use their existing banking facilities and either keep the funds in the foreign currencies, or have the transactions converted back into US dollars by their bank or by Intecard.

The price shown to the customer will be in their own local currency, so this has some advantages. Note that it is important that the price be changed into that local currency prior to the customer seeing a price in US dollars; if both prices are seen, the merchant has to comply with card association regulations in respect of offering the customer a choice of payment currency.

Pricing will still be variable by the VAT rate of the country of domicile of the customer , ranging between 15% and 25%, and the merchant will still have to make 27 different reports if it sells to each of the EU countries.

Note that many US processing banks are not able to handle multi-currency settlements, so this option is frequently not available.

Intecard makes no charge for this PAC provision. If Intecard is used for the currency coverage, it adds 1% into the price the customer pays; the merchant has no cost.

• Advantages: no new processing or corporate entity; is compliant
• Disadvantages: high cost to consumers (up to 25%); 27 different country reports; multi-currency conversion for consumer satisfaction only if processor is capable; extra accounting complication

Set up an EU subsidiary, or use an existing one, to settle all VAT payments at a fixed rate of that country, while using a local processing bank to comply with card association regulations.

Intecard can provide the PAC to the merchant, using the fixed rate of the chosen country. For instance, many US companies like to use the UK or Ireland so that they have no language problems and therefore need to collect VAT at 17.5% or 21% respectively.

The merchant has far simpler reporting, as it is to only one country. Intecard can assist in this regard, as well as providing its currency conversion service, if required. There is no charge to the merchant; if the Intecard currency service is used, 1% is added into the rate paid by the customer.

• Advantages: is compliant; rate is fixed at one level; only one report to make
• Disadvantages: rate may be higher than Cyprus; may have to arrange new processor (card rules demand an EU-based processor for EU-based companies); multi-currency accounting and foreign exchange risk may be involved

Have Intecard set up a Cyprus subsidiary for the merchant, to settle all VAT payments at the lowest VAT rate, using Intecard’s introduction (if necessary) to a major European processing bank.

Intecard provides the PAC, along with reporting facility into the Cypriot tax authority and the foreign exchange conversion service, again for no fee to the merchant. There are some fees charged by the lawyers and accountants in Cyprus for setting up new companies or branches in that country, which are passed on at cost by Intecard. Intecard includes an extra 1% to the conversion rate for the customer’s cost where applicable; there is no additional cost to the merchant on individual sales.

Note that Cyprus has the lowest VAT rate, at 15%, of any member state of the EU. This means that the typical customer will have a price advantage of an average of 5% against the price being charged by other merchants in other EU countries. As an example, a customer in Sweden would normally be paying 25% VAT for any of the external solutions, so would be benefitting from a saving of 10%.

• Advantages: is compliant; rate is fixed at lowest level; only one report to make; no multi-currency accounting or foreign exchange risk (if Intecard is managing the payments); local processor in EU available from Intecard
• Disadvantages: need to set up a Cyprus subsidiary; (special facility for Intecard members makes this simple and cost-effective)