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Dr. Ecommerce

I would like to know the rules for selling to the European market from non EU countries (Faroe Islands). We are a small company that will soon begin to sell our software via internet and we would to know if there are special rules about tax.

Tim Wentzlau

Dear Tim:

An interesting question. When a physical product (for example software on a CD-ROM) is sold from a non EU country to a EU country, the purchaser is liable to pay value added tax and any customs duty at the port of entry. In practice, this generally means the buyer needs to pay tax at the post office or to the courier company that delivered the product. In the case of small purchases, this tax is often, but not always, ignored.

In theory, the same is true for a digital product. The purchaser should inform her tax office and pay any duties and VAT. In practice, I'm sure most consumers don't bother. After all, this is impossible to police and few people have any moral problems about avoiding a bit of tax!

Businesses, on the other hand, can claim the cost of software against taxes. For this, they will normally need an invoice from you - and often a printed invoice. If you are selling to business customers, you should give them the option of receiving a formal printed invoice via snail mail if they need one.

Dr. Ecommerce