Hi Everyone,

When selling digital goods/services from the UK to another EU member state should you charge VAT at the UK rate (17.50%) or at the national rate of the customer?

Thanks,

David

Hi,

If your customer is a business and registered for VAT (or its equivilent) in their own country and that country is a member of the EU you do not charge VAT, they account for it on their accounts.

If your customer is a non-VAT registered business (or, IIRC, a private consumer) then you charge VAT at the UK rate.

Give Customs and Excise a ring on 0845 010 9000 to check my advice though.

Nath

If your customer is a non-VAT registered business (or, IIRC, a private consumer) then you charge VAT at the UK rate.

Thanks, that is what we have been doing but read somewhere that you should charge EU clients at their national rate.

I've never heard of charging VAT on the customer's national rate (sounds like rubbish TBH), but check with HMCE anyway - they're really helpful on the phone.

Same here, we only read it on an off-chance after searching for Vatable countries, we found it on Amazon and eBay's sites.

If your customer is a business and registered for VAT (or its equivilent) in their own country and that country is a member of the EU you do not charge VAT, they account for it on their accounts.


Yep, but you have to make sufficient checks to ensure that the VAT ID for the foreign company is valid, you should call customs and excise to verify the details and have them log the call. You can't just take their word for it.

Thanks everyone, our accountant confirmed we should charge 17.50%.

A good tool to check VAT numbers is http://europa.eu.int/comm/taxation_customs/vies/en/vieshome.htm

Nice tool but it doesnt always work, I have tried it with several foreign residents, resident in Spain and registered for IVA (VAT) and it returns that non of them are valid. I have confirmed with Hacienda (The Spanish Tax Authority) that these numbers are indeed valid.

hey for the brains about to fart american, whats VAT?

Value Added Tax = Sales Tax

Also bear in mind that even if you sell to a non-EU state, you still need to think about whether that service (in whole or part) can be sold back to an individual or business witin EU.

I.e If you sell a Reseller account to a business/individual in US, who then sells hosting to someone in UK, VAT should be charged.

Always think about the end to end route of the goods. This is easier with tangible goods, since C&M will charge VAT on goods as they enter the country.

The easiest way is simply to charge Vat on everything and let the user claim it back if they feel they are exempt, or if they are Vat registered.

>I.e If you sell a Reseller account to a business/individual in US,
>who then sells hosting to someone in UK, VAT should be
>charged.

I don't think so because in this case the reseller has to charge their customer VAT. If you charge VAT as well you would charge twice.

Originally posted by mjb-is
Also bear in mind that even if you sell to a non-EU state, you still need to think about whether that service (in whole or part) can be sold back to an individual or business witin EU.

I.e If you sell a Reseller account to a business/individual in US, who then sells hosting to someone in UK, VAT should be charged.

Always think about the end to end route of the goods. This is easier with tangible goods, since C&M will charge VAT on goods as they enter the country.

The easiest way is simply to charge Vat on everything and let the user claim it back if they feel they are exempt, or if they are Vat registered.

Would you share with us the EU VAT legislative document, and its number, that deals with this scenario ?

Think about the problems this would cause: You sell a reseller account to someone in the USA. Now you charge them 20 bucks and he resells it to 50 people... How should you know if these people are EU customers or US based ? Also it would mean that you have to adjust the fees every time his client base changes. For example if he has 50 customers... some paying 5 bucks, some paying three bucks you would have to calculate exactly how much of the 20 bucks he is paying belong to a EU customer... I don`t think so.

Also you can`t just charge VAT on everything because as far as I know charging a US cusomter VAT is not only not necessary but not allowed actually. So you would really have to calculate how much your resellers customers are using. That is impossible...

No, the Reseller wouldn't charge Vat as they aren't Vat registered in the UK (remember the Reseller was US selling back to UK). Thsi is the exact reason why you SHOULD charge them Vat. The service originates, and is sold back to, the UK. It's no different to you selling to a non-Vat Registered UK Reseller. He would pay Vat to you, but wouldn't charge Vat to his client.

If you know that the goods or serviec won't be resold back into teh EU then there is no problem and you don't charge Vat. The issue is how you can be 100% certain of this. If you don't charge teh Vat then it's your call. If it subsequently turns out that you made a wrontg decision then you could be liable for the Vat as you should have collected it on behalf of C&E.

Besides, Vat stands for Value ADDED Tax. This means everyone that is VAT registered in teh chain charges Vat, but claims back teh Vat they paid. Customs & Excise get the TAX on the ADDED VALUE of the goods or services.

Even if you sold to a Vat registered UK Reseller, there are two ways of dealing with it.

1) You take his Vat number and don't charge Vat. He accounts for this on His Vat Return as do you.

2) You charge him the Vat, but he then claims it back on his Vat return against Vat he has collected form his own custoemrs. He pays C&E the balance or the TAX on teh ADDED VALUE.

The problem with selling outside the UK with these types of services is that you don't always know if any part of that service will be resold back to a UK/EU resident individual or business. Therefore the safest way is to charge Vat on everything and let the client state their case to UK C&E. That way C&E make the decision on whether that client is Vat Exempt and not you.

>Therefore the safest way is to charge Vat on everything and let
>the client state their case to UK C&E

As far as I know it is not even allowed to charge a US customer VAT. Even if what you say about resellers is true you can`t just charge VAT on everything.

Originally posted by mjb-is
[B]
Even if you sold to a Vat registered UK Reseller, there are two ways of dealing with it.

1) You take his Vat number and don't charge Vat. He accounts for this on His Vat Return as do you.

2) You charge him the Vat, but he then claims it back on his Vat return against Vat he has collected form his own custoemrs. He pays C&E the balance or the TAX on teh ADDED VALUE.



For UK customers you cannot use (1) if you are VAT registered you have to produce a VAT invoice for the customer if they are VAT registered they claim it back in their own VAT return. If the client is in an EU country other than the UK you can obtain the VAT number of the EU customer and charge 0 VAT recording their VAT number for your records.

Countries outside the EU are now supposed to account for VAT on digital goods supplied to EU countries, I have seen a few companies doing this but no idea how it is accounted for or how it is policed.

As with all things VAT and tax related see an accountant - my last VAT visit had the inspector on the phone to the office 3 times checking out the position on certain items and if they don't know what bloomin chance have the rest of us.

Originally posted by psihost
Would you share with us the EU VAT legislative document, and its number, that deals with this scenario ?
No, but I'll dig out the email that came from HMC&E on the subject when asked for clarification.

An extract of return email from HMC&E:-

I understand from your e-mail that you are providing electronically supplied services from UK to a customer outside the EU

If your customer does not receive the services for business purposes, the supply is automatically outside the scope of UK (and EU) VAT.

However, if the services are received for business purposes, but are not used and enjoyed within the EU, the supply is again outside the scope. If they are used and enjoyed in the EU, the supplier in UK must account for any VAT due.

I hope this clarifies the matter for you, however, please do not hesitate to contact the National Advice Service should you have a further query on this matter.

Yours sincerely

<Name Removed>
Officer of HM Customs and Excise

Originally posted by Goldwing

As with all things VAT and tax related see an accountant - my last VAT visit had the inspector on the phone to the office 3 times checking out the position on certain items and if they don't know what bloomin chance have the rest of us. [/B]

Goldwing makes an excellent point there. I am a qualified accountant here in Spain and specialise in EU tax. There are still myriad examples of EU VAT and Tax directives being ignored, implemented incorrectly, or misinterpreted.

This can be attributed to several reasons, the most 'legitimate' being a country that is in a transitional state in fully applying the EU directives (the UK is in this class), right down to the sad scenario of a tax authority worker that either has never received notification of tax changes or couldn't be bothered to read it if they had, and is dogmatically applying the old rules as they know them.

One should always defer to the authority of the country in which you operate for a ruling on VAT if you are unsure as to whether to apply it or not, and don't rely on a verbal yes/no, get it in writing as an answer to an officially submitted query and C.Y.A. :)

@mjb-is:

Ok but that doesn't really refer to resellers... What does "using" a service mean ? If a US company resells your services to a EU customer then you could say the US company is using it to resell it. You could also say the customer's customer is using it. It could be either way...that email doesn`t really answer how "using and enjoying" is defined...

Actually what they say is:
If you sell to an individual outside the EU you do never pay VAT. If you sell to a business outside the EU you don`t pay VAT either. If you sell to a business within the EU you pay VAT (at least unless they provide you with a VAT ID #)...

They don`t really refer to resellers...

Originally posted by psihost
Goldwing makes an excellent point there. I am a qualified accountant here in Spain and specialise in EU tax. There are still myriad examples of EU VAT and Tax directives being ignored, implemented incorrectly, or misinterpreted.

This can be attributed to several reasons, the most 'legitimate' being a country that is in a transitional state in fully applying the EU directives (the UK is in this class), right down to the sad scenario of a tax authority worker that either has never received notification of tax changes or couldn't be bothered to read it if they had, and is dogmatically applying the old rules as they know them.

One should always defer to the authority of the country in which you operate for a ruling on VAT if you are unsure as to whether to apply it or not, and don't rely on a verbal yes/no, get it in writing as an answer to an officially submitted query and C.Y.A. :)

In the context of that email and phone conversations 'using' the service means any use. Therefore if they buy a Reseller account from you and then 'use' that service to sell hosting from it to an EU individual or business then it should be Vatable, from what we were told.

We have actually submitted a request for a Ruling on specific sceneraios, since we provide service to US clients that could then sell hosting into EU etc. We also have US servers which we host EU clients on. In that case it has been said that we should mark Vat as both paid and claimed back on returns, when putting down the server costs we pay.

As others have said, it's a minefield. As a Vat registered company you become a free Vat Collector for HMC&E and you are expected to make decisions in situations that you can't always even get a clear answer from C&E about. That's why we have just about come to the conclusion that the easiest way is to say that we are a UK company so we charge UK taxes.

I know that some other hosting companies in the same position follow this scenario.

** Just to clear up that all my posts are with reference to the position in teh UK. All correspondence quoted is with reference to the UK Vat position as we have been advised by UK customs & Excise **

Mike, let me use the reply you got from H.M. C&E to demonstrate the confusion in Europe at the moment.

C&E may regard web hosting as an 'electronically supplied service' whereas in Spain it is not.

'Electronically supplied services' that should have VAT levied are taken to apply to commercial web advertising, commercial server side applications (either available for public use or privately contracted) or consultancy that is targeted at a market that includes an audience in Spain. The EU legislation actually refers to the country in which the service is seen to have taken place (irrespective of the geographical location of the web server) so an advertising service sold in Spain targeted at a Spanish market is VAT'able whereas the same service sold in Spain to a VAT registered UK company targeted at a UK market wouldn't be.

Its no wonder everyone is confused !!!

I think it might be worth adding some sort of disclaimer to the posts to reflect the fact that the rules you are quoting are from the perspective of a UK based company and tax authority.

Too True.

I have added a note to the bottom of my most recent post to the effect that this is based on info received with ref to UK Vat.

The system won't let me edit previous posts as it only lets you edit within 15 mins of the post.

I completely follow what Mike is saying here, and from my interpretation, I agree with him (and HMCE which is never bad).

If you sell a reseller account to someone in the USA, and you are based in the UK with your servers and they then use those resources to provide service to someone in the EU, then you should charge VAT on the price of the reseller account sold to the American business - Not on the prices the American company is charging their customers. Why? Well the place of supply is ultimately in the UK, regardless of it being an American company billing the EU customer.

I think that is basically what Mike and HMCE are saying, as I can see from earlier posts, some people aren't quite following.

As always though, it's best to get a written ruling from HMCE of your own to cover it.

>C&E may regard web hosting as an 'electronically supplied
>service' whereas in Spain it is not.

I wonder how they explain that ? I mean I can`t imagine anything on the world that is more electronically supplied than web hosting LOL.

Originally posted by KDAWebServices
I completely follow what Mike is saying here, and from my interpretation, I agree with him (and HMCE which is never bad).

If you sell a reseller account to someone in the USA, and you are based in the UK with your servers and they then use those resources to provide service to someone in the EU, then you should charge VAT on the price of the reseller account sold to the American business - Not on the prices the American company is charging their customers. Why? Well the place of supply is ultimately in the UK, regardless of it being an American company billing the EU customer.

I think that is basically what Mike and HMCE are saying, as I can see from earlier posts, some people aren't quite following.

As always though, it's best to get a written ruling from HMCE of your own to cover it.

HMCE did not mention resellers with a single word. Besides that: How are you supposed to know who is reselling your services. Absolutely every customer could be reselling your services without any possibility for you to know about it. Ok you say: Simply charge everyone VAT but first that is a big disadvantage towards my US competitors and second charging a US customer VAT is not even allowed from what I know. So if it is really like that it is totally impossible to do it right.

Originally posted by thomas.smith
>C&E may regard web hosting as an 'electronically supplied
>service' whereas in Spain it is not.

I wonder how they explain that ? I mean I can`t imagine anything on the world that is more electronically supplied than web hosting LOL.

They seem to have categorised the sale of web hosting as a 'product' not as a 'service' here in Spain.

Its this sort of interpretation of web technology that was never clearly defined by the bureaucrats in Brussels (who seem to have absolutely no grasp of the industry they are trying to apply legislation to) that is leading to so much confusion.

>They seem to have categorised the sale of web hosting as
>a 'product' not as a 'service' here in Spain.

Ah...and then how do they explain that ?

I think the guys in the EU government are really freaks because almost everything they do is total crap and nonsense. Sometimes I wonder if they are having some sort of internal contest where the person with the most ****ed up ideas wins.

But I really don`t believe that reseller thing...

Originally posted by thomas.smith
>They seem to have categorised the sale of web hosting as
>a 'product' not as a 'service' here in Spain.

Ah...and then how do they explain that ?

Well my guess is, they regard it like someone renting you a commercial premises, its not regarded as a 'service' its a tangible 'product' here. A web host is renting you 'space' on a server, that's not such a giant leap of the imagination from renting office space :)

Any commercial consultancy you provide your end user is another matter (if you charge for it) it is a 'service' and falls under the 'electronically supplied service' rules.

Originally posted by thomas.smith
HMCE did not mention resellers with a single word. Besides that: How are you supposed to know who is reselling your services. Absolutely every customer could be reselling your services without any possibility for you to know about it. Ok you say: Simply charge everyone VAT but first that is a big disadvantage towards my US competitors and second charging a US customer VAT is not even allowed from what I know. So if it is really like that it is totally impossible to do it right.
They don't have to mention Resellers specifically.

Think of this scenario. You sell a Reseller account to a US client. He sells a hostinga ccount his UK customer. The way you are thinking, the UK customer would end up with a service that waasn't Vatable, that originated from a Vat registered UK business. This is clearly not allowed. If you are a Vat registered business and your goods or services make their way back to a UK/EU individual or business then they you must charge Vat.

Your point about not knowing whether YOUR US client will ultimately sell back into the EU is exactly the point being raised in this thread. Unless you can be 100% certain that this won't happen then how can you NOT charge Vat?

As the email from HM C&E stated, if the Non-EU business does NOT use the service in the EU then you don't charge Vat. If they do use it in EU (reselling it in whole or part to an EU client is using it) then you should charge Vat.

Consider the end-to-end route and it actually makes sense. It confused the hell out of me to start too.

I'm certainly not sure about the bit where you say that you are NOT ALLOWED to charge a US customer Vat. They will have a Vat invoice from you, so if they feel they should have been Vat Exempt then they are at liberty to reclaim that from Customs and Excise. As long as you have a legitimate reason for believing that you were correct in charging Vat I think I'd rather be in that scenario than not having charged it when we should have and ending up liable for it out of our own profits.

Now, the awkward one is this: If you sell End User hosting to a US business does it count as being 'used or enjoyed' in the EU due to the fact people in EU can view their web site?

>Think of this scenario. You sell a Reseller account to a US client.
>He sells a hostinga ccount his UK customer. The way you are
>thinking, the UK customer would end up with a service that
>waasn't Vatable, that originated from a Vat registered UK
>business.

No, that's not what I am saying. I think that in this case your US customer is using your service in the USA (he is doing business with it from the USA) so you do not have to charge him VAT. However, the US business has to charge their UK customer VAT because their customer is using the service in the UK. That means the UK customer still ends up paying VAT but the US company is collecting it...you are not because your service is used in the USA. Think of it like this. You are selling a car to a US customer and that US customer is selling the car to a UK customer. Now did you sell to a US customer or a UK customer ? You sold to a US customer and he sold to a UK customer. He is using it by selling it to someone else.

>This is clearly not allowed. If you are a Vat registered business
>and your goods or services make their way back to a UK/EU
>individual or business then they you must charge Vat.

The US company has to collect it. They definitely do. If a US business sells services to a EU customer they have to collect VAT for that customer and pay it to one of the EU government. Then this government will forward the money to the end users country. That is how it works.

>Unless you can be 100% certain that this won't happen then
>how can you NOT charge Vat?

Cause you are selling to a US customer and the US customer is using the service by selling it to someone else. It`s not your business to whom it is sold. The thing is you are selling it to someone in the US and they are using it by reselling it. If they resell it to a EU customer they have to collect VAT and pay it to the EU.

>As the email from HM C&E stated, if the Non-EU business does
>NOT use the service in the EU then you don't charge Vat.

Yeah, but they are using it in the US by selling it to someone else.

>I'm certainly not sure about the bit where you say that you are
>NOT ALLOWED to charge a US customer Vat. They will have a
>Vat invoice from you, so if they feel they should have been Vat
>Exempt then they are at liberty to reclaim that from Customs
>and Excise.

From what I have heard you are not allowed to charge someone VAT without a reason. If you are selling to a US enduser and collecting VAT just because you think he might be reselling it you are charging him VAT without a reason if he is not reselling it. That is something you are not allowed to do.

I mean if it was like that imagine you are selling a machine to a US citizen. He uses this machine to build items. Now he sells the item to a EU customer. Does this mean YOU are selling the item to a EU customer because you sold him the machine ?? No, it doesn`t. You sold him a machine and he used it to build items in the USA. That means he is using it in the USA. It`s not your business if he sells those items in the USA. And its the same about the webspace. If you are selling webspace to someone in the USA and he does business with it he is using the service in the USA. The services he provides might be used in Europe but the service you provide is used in the USA.

I would have thought that it would be the resposibility of the EU client who is "importing" his servers from outside of the EU to pay the VAT.

The same with hard goods that are imported. I have to pay VAT when they arrive and then charge VAT (and claim back the VAT I paid) when I sell them

I am sure about that: No, the US company has to collect the VAT for the EU customer unless the customer is a business with a VAT ID #...

I am pretty confident about that but not sure: However, if a EU company sells to a US company and then that US company sells to a EU customer the US company has to collect the VAT and pay it to the EU and the EU company does not have to collect it.

Originally posted by thomas.smith
I think the guys in the EU government are really freaks because almost everything they do is total crap and nonsense. Sometimes I wonder if they are having some sort of internal contest where the person with the most ****ed up ideas wins.

But I really don`t believe that reseller thing...

That's the story of the entire EU....

A waste of time and money for British people. Our costs associated with the EU are double that of the money we make out of it.

Same for Germany... I guess its good for Poland and Slovakia though LOL and Turkey if they really join the EU. At least in the UK you kept your currency... Here in Germany everything got twice as expensive except for the wages.

But how can a US business collect Vat for the UK? You only charge Vat on an item if your business is Vat registered. If your business is not Vat registered then you don't charge Vat on your goods and services.

A non-Vat Reg'd UK business wouldn't charge Vat, although they would pay it on any supplies etc, so how can a Non-UK Non-Vat reg'd US business collect Vat?

The whole confusion is over the difference between tangible and non-tangible goods. On tangible goods , they can be physically tracked as they go through Customs in and out of the country and any appropriate taxes applied.

There is no such trackability for non-tangible services such as we are talking about.

I can understand the logic you are using, but the guidance we have had from HM C&E has said that we would charge Vat if the service is resold, in whole or part, back to EU. I'll go with what they have said until they say different.

>But how can a US business collect Vat for the UK? You only
>charge Vat on an item if your business is Vat registered. If your
>business is not Vat registered then you don't charge Vat on
>your goods and services.

If your US company is not VAT registered you are not allowed to sell VAT taxable goods and services in the European Union. If a US company takes customers from the EU they have to register in one of the EU countries (of their choice) and pay the VAT for all EU countries to this country. For example they are registered in Poland...now they sell to a UK customer -> They pay 17.5% VAT to Poland. Now they sell to a German customer -> They pay 16% VAT to Poland. Now Poland forwards the 16% VAT to Germany and the 17.5% VAT to the UK. That is how it works. US companies have to collect VAT for EU customers and have to register in the EU if they sell to EU customers. Of course most US companies don`t do that first because they don`t know this law, second because they don`t care about this law. Even the US president says this law sucks (well, he used other words). At least if they do never intend to travel to the EU most small to mid size businesses do not collect VAT. The really giant companies with tens and hundreds of millions do charge VAT in the EU, of course.

>A non-Vat Reg'd UK business wouldn't charge Vat, although
>they would pay it on any supplies etc, so how can a Non-UK
>Non-Vat reg'd US business collect Vat?

As a UK business you have to collect VAT once your VAT taxable cashflow is higher than a certain amount of money. As a US business I am not sure if there is something like an option to be not VAT registered if you only make like less then 20k Dollar or something but I am sure US businesses have to either register in the EU or not sell to customers from the EU or they are breaking EU law.

>I can understand the logic you are using, but the guidance we
>have had from HM C&E has said that we would charge Vat if the
>service is resold, in whole or part, back to EU.

But they didn`t say that in the email you posted. They just said it depends on where the service is used. Now my opinion is that if you sell to someone in the USA and then he resells it to the EU the service is used in the USA from your point of view because your customer (the reseller) uses it in the USA and if he sells it back to a EU customer they are the ones to collect VAT. Of course if you talked to someone and they said that resold services are beeing used where the reseller's customer uses them it might be true.

I may have misread the information you wrote above but to me a lot of this seems wrong... I went to a VAT seminar only a week ago and this is what they told us (they being the HMCE):

If you are a UK VAT registered business:
...and you sell to a business or consumer within the UK, you must charge VAT.
...and you sell to a business or consumer within the EU, you must charge VAT @ 17.5% UNLESS they are a company and have the equivilant of a VAT number and can provide you with this.
...and you sell to a business or consumer outside of the EU, you DO NOT charge VAT to your customers.

I'm not sure on the laws for countries outside of the EU, but I do know that many companies in the USA we have bought off do not charge us sales tax but they do to customers within their state.


As a UK business you have to collect VAT once your VAT taxable cashflow is higher than a certain amount of money.


This isn't striclty true. There are many examples where a company should not charge VAT - certain services & products cannot have VAT charged on them.

Tescos, Sainsburys etc do not charge VAT on food, water, milk, eggs etc (and are not allowed to).

Thanks,

Chris Evans

>This isn't striclty true. There are many examples where a
>company should not charge VAT - certain services & products
>cannot have VAT charged on them.

I was referring to webhosting, of course...