What are the rules regarding this? We are a US based company with customers in the EU. Must we charge the VAT?

No.

How does that make any sense? VAT is for European businesses charging European customers. Do you get charged US Sales Tax for buying something from a European company?

No.

Yes ;-)

VAT is for European businesses charging European customers.

Wrong I'm afraid. To make it short European VAT applies to goods and services sold to European customers not matter whom by, so normally, since about July 2005 I think, even US companies should have a European VAT status, and repay in EEC the VAT it made its clients pay when they buy from it, unless those clients can provide a valid EEC VAT number, which most European companies can provide.
In one of the project I managed, I helped implement a programming function that checks such a VAT number with an API on a Customs sites, and the ecommerce site such as OScommerce can then calculate the client price accordingly.
Most companies outside of EEC either choose Portugal to register for VAT which used to have the lowest rate, or the UK, and only register in one country in EEC even if they sell in many, so for example the UK would then pay VAT to each country.

The fact is, not everybody is aware of those rules, and not many companies have complied yet it seems.

The rule is that any company supplying electronic goods to an individual in an EU country should charge VAT and eventually pass this on to the EU. For physical goods the EU customer pays the postman.

If you are supplying to a business in an EU country then you do not charge VAT because the EU business must declare the VAT payable in their VAT return.

Your case is a little different since you are not necessarily suppling anything into the EU. I assume the servers are located in the USA in which case it can be argued that the service is supplied in the USA and hence not imported into the EU. If this is held to be true then VAT would not be applicable.

If you are supplying to a business in an EU country then you do not charge VAT because the EU business must declare the VAT payable in their VAT return.

This is true, but I guarantee a lot of people in this business are not making the £60,000 or so required for registration, and a lot of the smaller hosts probably don't volunteer for the added stress from HMRC!

So you do need to be careful, however I've not heard of even one case where a US company had problems with HMRC as it's so hard to enforce.

There is some VAT loophole in the law over here at the moment, don't ask me what it is you can find out on Wikipedia...

Its how www.play.com and Amazon Jersey are so cheap, as they don't need to pay VAT on the items they sell British residents (Although they both take about 15% extra profit each)

I am 100% sure about this:
1. As a US host you do have to charge EU customers VAT even if you are operating your business from the USA and even if your servers are located in the USA.

2. According to the European VAT law webhosting services are considered as provided where the customer resides if the customer is an individual. This applys even if the service is provided in the US according to civil law.

3. If the customer is a business the service is provided in the USA which means you do not have to pay VAT if your EU customer is a business (identified by a valid VAT registration ID number...there are official websites and databases you have to use to validate VAT IDs).

4. Delivering real goods like Amazon does is something entirely different that has nothing to do with internet services like webhosting. If you sell webhosting or similar services there is no way you can get around the VAT.

5. The small business limits such as X0,000 Pounds in the UK do not apply to US businesses. These limits differ from country to country and usually do only apply to business registered in the specific country.

6. To pay the VAT you have to register in any EU country and then you have to pay each customer's individual rate like X% for customers from UK, X% for customers from Spain etc.

Of course if you are caught you have to pay those taxes... However, as long as you stay in the US they probably can't enforce their laws.
In Germany for example you usually get jail on parole between 50.000 and 250.000 Euros of unpaid taxes and you go to jail without parole starting at around 250.000 Euros. If you do not pay VAT regularly over a long period you can get up to 10 years in jail here. Usually after 10 years it is prescribing (so you do not get any penalty and you do not have to pay those taxes anymore after 10 years). I guess it's similar in other EU countries.

Well, it looks like people are equally "certain" on either side of the debate. Can anyone cite a source that corroborates their claim?

Well, it looks like people are equally "certain" on either side of the debate. Can anyone cite a source that corroborates their claim?

Read "Directive 2002/38/EC" (edit: No that's just an ammendment... Read the text it is referring to and the later ammendments regarding electronically provided services here (
http://ec.europa.eu/taxation_customs/common/legislation/legislation/taxation/index_en.htm
)):
http://www.belastingdienst.nl/download/en/433.html
http://www.belastingdienst.nl/download/en/434.html
http://www.belastingdienst.nl/download/en/432.html

Also read some of these:
http://ec.europa.eu/taxation_customs/common/legislation/legislation/taxation/index_en.htm

Alright now I can't edit it anymore so forget the previous post. What you need to do is read directive 77/388/EEC. Then read the other directives regarding electronically provided services that are ammending to this directive. Some of them can be found on:

http://ec.europa.eu/taxation_customs/common/legislation/legislation/taxation/index_en.htm

Actually you need an accountant because these texts are too long and complicated for a normal human being to understand. Be aware though that even European accountants often do not know enough about this law and directive. Many of them are giving wrong advice.

It's very simple and to make it short:

USA and EU have an agreement concerning VAT which have to be paid to the country where the customer resides when the customer purchases a digital good from a US- or EU-based company.

Currently the VAT-regulation is not expanded to all countries on this planet. For example, if a company is based in an Asian country, then the company does not need to charge VAT from the US- or EU-based customer and to send the VAT to USA or to the European country.

As many countries are entering the World Trade Organization it is likely that the VAT regulation will affect many Asian-based companies.

Companies based in tax havens like BVI or Panama currently don't need to charge VAT from its US- or EU-based customers and send the VAT to USA or to the EU-country where the customer resides. It looks as if this stays like it is now for a long time.

It's very simple and to make it short:

USA and EU have an agreement concerning VAT which have to be paid to the country where the customer resides when the customer purchases a digital good from a US- or EU-based company.

Currently the VAT-regulation is not expanded to all countries on this planet. For example, if a company is based in an Asian country, then the company does not need to charge VAT from the US- or EU-based customer and to send the VAT to USA or to the European country.

As many countries are entering the World Trade Organization it is likely that the VAT regulation will affect many Asian-based companies.

Companies based in tax havens like BVI or Panama currently don't need to charge VAT from its US- or EU-based customers and send the VAT to USA or to the EU-country where the customer resides. It looks as if this stays like it is now for a long time.

Do you have any official documentation to back up that the US has /agreed/ to this? I know Dubya is a moron, but to willingly assign businesses to be a patsy of the EU's own adjenda seems a bit far fetched.

According to EU laws ANY company that sells hosting services to EU customers has to charge VAT no matter if they are from China, Panama or the USA. This is independent from any agreement simply because VAT is a consumer tax and no agreement is needed because if a US company has to charge VAT that does not mean that the EU is charging someone from the US taxes but they are actually charging an EU resident the taxes...only a US company is collecting it for the EU. Of course you can say that sucks but that is how the EU sees it.

According to EU laws ANY company that sells hosting services to EU customers has to charge VAT no matter if they are from China, Panama or the USA. This is independent from any agreement simply because VAT is a consumer tax and no agreement is needed because if a US company has to charge VAT that does not mean that the EU is charging someone from the US taxes but they are actually charging an EU resident the taxes...only a US company is collecting it for the EU. Of course you can say that sucks but that is how the EU sees it.

But absent any US agreement, my personal opinion is they can stick their vat requirement where the sun don't shine. We are in the US, we will follow US laws. I don't care if they're actually taxing a willy nilly on a hot dog, if they want their tax from EU residents, they need to get their tax from EU residents, not us.

Yes, it sucks depending on your countries residents to be HONEST and report their overseas purchases HONESTLY in their tax forms, but hey, that's not my problem.

And I'll venture a guess that this WON'T ever be helped by US legislation, since even companies in other US states arn't required to collect sales tax for out of state residents. Unless we ever agree to do this internally, there's not a chance of being required to do it for inter-country commerce.

And to think, some people say the US acts like it's in charge of the world... as far as I know, we don't pretend that we can order businesses in other countries to collect taxes for us, and even if on the off chance we do, I doubt we would mandate it to be done for free as the EU seems to wish.

Didn't mean for this to get so long, but this aparently irks me. :)

It would be difficult for the EU to enforce on US hosts, with the exception of US hosts with assets in Europe that support their hosting business (e.g. servers). The taxing authorities could sieze those assets in lieue of collecting taxes, I would think.

It would be difficult for the EU to enforce on US hosts, with the exception of US hosts with assets in Europe that support their hosting business (e.g. servers). The taxing authorities could sieze those assets in lieue of collecting taxes, I would think.

That would be highly interesting. I could see that as a way to maybe enforce remittance of the tax, i.e. some company was charging the VAT but not distributing it back to the EU, in which case money would be owed and that would make some sense, but if we just arn't collecting the tax, technically, then we're not witholding any money from them, IMHO. Otherwise, it IS a tax on the company, and we've already had one spat over taxation without representation...

There's a good thing about the nature of VAT:

VAT is not money earnt by the company for its services, but money which is taken by the customer and which has to be forwarded to the country.

For this reason I have written in the Terms and Conditions that all prices exclude VAT and that VAT is not charged by my company but that the customer has to pay VAT to its country if the customer's country wants to get VAT. My company is not based in every customer's country and I don't get any money from their government. For this reason there is no need for my company to charge my customers VAT and forward it to the government of each customer's country.

As my company is based in Panama I don't have to charge any taxes in Panama.
As my company offers all services online my company is not represented physically in all countries where the customers are living.
For this reason my company doesn't need to charge VAT from my customers and forward the money to their governments.

I think the way I have included this in my Terms and Services is sufficient in order to avoid any violation with foreign countries.

As one user has written correctly: No taxation without representation.
In this regards it means that as long as the customer is not based in the country where my company is based my company doesn't need to charge VAT and forward VAT to the customer's country.
In my case as Panama is an offshore country there is no need to charge VAT as there is no VAT.

Yes, they can not enforce it...unless you step into the EU. As soon as you do they will no longer stick their regulations into their asses but they will get yours busted...
And if you ask me for my personal opinion: The entire EU idea is just a way to gain even more power over the people.

For this reason I have written in the Terms and Conditions that all prices exclude VAT and that VAT is not charged by my company but that the customer has to pay VAT to its country if the customer's country wants to get VAT.

That's not sufficient according to EU laws (of course !). No taxation without representation...yes...but you do not pay the tax. You just collect it. And that is the price you pay for doing business with EU customers. That is how the EU sees it. Of course it is ******** but that is how they see it and they will enforce their laws as soon as you pass their borders. Like when you are from Panama you may get arrested if you travel through French Guyana on a trip to Brazil because it (French Guyana) belongs to the EU and so on...

but if we just arn't collecting the tax, technically, then we're not witholding any money from them, IMHO.

According to EU laws you do... And forget about your opinion... I mean do you really think if you get arrested and then you say: "but it is not me who owes it I just have to collect it" then they will release you and apologize ? Your opinion isn't worth a dime if you get busted...

According to EU laws you do... And forget about your opinion... I mean do you really think if you get arrested and then you say: "but it is not me who owes it I just have to collect it" then they will release you and apologize ? Your opinion isn't worth a dime if you get busted...

I guess they'll just have to live without the economic boom that is "Jacob On Vacation" :D :banana:

Glace, you cannot possibly be serious. If a US company would charge EU vat, who on earth would they possibly have to submit the VAT returns to? Your story about that a US company would have to submit the VAT back to the company where the EU client is from is absolute bull.

As a US registered company, you should not, and can not charge European VAT. It is the responsibility of the customer to deal with his own tax. We are a Dutch company and have been in business for almost 7 years now, of which we have operated 6 years in the US, we know all about it.

Glace, I really don't want to ricicule you or anything, but you should stop giving people this kind of completely false information.

Here I got it from an official source now for all of you wise people who know better:

If you are a non-EU supplier of electronically supplied services providing services to private individuals or non-business organisations in the EU, you will be required to register and account for EU VAT.
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000902&propertyType=document

And finally here is the directive... It is all explained here...that non EU businesses need to register here etc. etc. Now I really hope nobody is going to doubt about it anymore:

http://europa.eu.int/eur-lex/en/dat/2002/l_128/l_12820020515en00410044.pdf

Here I got it from an official source now for all of you wise people who know better:


http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000902&propertyType=document

And finally here is the directive... It is all explained here...that non EU businesses need to register here etc. etc. Now I really hope nobody is going to doubt about it anymore:

http://europa.eu.int/eur-lex/en/dat/2002/l_128/l_12820020515en00410044.pdf

Sure, those are EU rules for EU companies. Anything they try to 'dictate' to anyone outside of the EU is merely a request, and until such time it is MORE than just a request, it will be ignored like a child asking for a gift they do not deserve. :)

Sure, those are EU rules for EU companies. Anything they try to 'dictate' to anyone outside of the EU is merely a request, and until such time it is MORE than just a request, it will be ignored like a child asking for a gift they do not deserve.

Yes, unless you travel to the EU and find yourself in jail... These are not EU rules for EU companies or what do you think do they mean by "If you are a non-EU supplier of electronically supplied services "...

This is not something they are asking for like a child. This is something that can get you in jail if you move your butt to the EU.

Yes, unless you travel to the EU and find yourself in jail... These are not EU rules for EU companies or what do you think do they mean by "If you are a non-EU supplier of electronically supplied services "...

This is not something they are asking for like a child. This is something that can get you in jail if you move your butt to the EU.

They are in no position to GOVERN my business. I will run my business according to US rules and US laws. Not what some deluded group of countries thinks they can tell me to do. :)

They are in no position to GOVERN my business. I will run my business according to US rules and US laws. Not what some deluded group of countries thinks they can tell me to do. :)

This may work as long as you stay out of any country where they can get hold of you... But as a business owner it's bad if you can not travel to certain countries... I.e. you may need to defend your legal rights (trademarks or if someone owes you money etc)... now it may be necessary to travel to any of these countries and that could be an issue then if you didn't pay the VAT. I would not feel good about being "wanted" in a country where my customers are living.

OK, guys, lets make it short and it is the absolute truth and it can be checked by anyone of you if you ask around:

Yes, there is a law in the EU requiring all companies (within and outside EU) to charge VAT from its EU-based customers.

BUT: As the EU did not implement anything that could make it easy for companies to forward VAT AND as the EU cannot check ALL companies of this world whether or not VAT is charged and forwarded to the EU ONLY big companies are charging VAT and paying it to the EU.

I know lots of (small and middle-sized) web companies outside EU and USA which have lots of customers in the EU and in USA and they have never charged VAT and they have never got a request from the EU or USA to do that.

It is simply absurd to think that a company with automatic online services have to know and follow the laws of all countries of the world.

You guys are frightened by the foolish American government arresting foreigners just because they have accepted customers from USA for its gambling services.

Does anyone of you guys know how many countries are in this world?
Does anyone of you know ALL laws and loopholes of all countries which can require to pay money to the government of a country or how you can avoid paying these taxes?
Does anyone of you know a company which operates from one country only, but which offers online services globally and which is paying taxes to all countries of the world?

As one user has written correctly:
This is just ridiculous.

I know of a tax law in Germany in 1997 until the end of 1999. It required people to pay taxes for the profits they made from stock trading. But nobody could systematically check whether somebody has traded with stocks and paid taxes. Banks were not required to tell authorities automatically whether or not someone has made a profit through stock trading. The consequence was that people who were scared reported everything in their annual tax files and people who thought that this law is just not fair because people who do not report anything but keep all their doing secret (not telling anyone about their stock trades) didn't complain, didn't reveal anything about their stock trading activities and didn't pay any taxes. Everyone knew that this law is just foolish and this law was called "Stupidity Tax" by the people and even by the politicians. In 2003 a law was passed which says that all those people who didn't pay taxes for their stock trading profits between 1997 and 1999 will not be punished if they get noticed because the law of that time had flaws. Those who paid taxes at that time do not get their taxes back because the law, even though with flaws, required them to pay taxes for their stock profits.

This situation is the same like now in regards to charging VAT from all companies of the world which are not based in the EU or in USA.

People are still required to pay taxes for the profits they made from stock trading in Germany unless they are long term traders (12 months between buying and selling). Apart from that banking confidentiality has just been abolished in Germany...

Any company that provides electronic articles hould charge VAT and eventually pass this on to the EU.