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Dear Dr Ecommerce,

If I start a UK business selling goods via the internet to residents in other EU states, what rate of VAT will apply to sales within the EU but outside the UK? I am assuming I will be selling a large volume so will meet the threshold for tax registration in a number of EU states.

On my businesses web site, would I need to publish the VAT rate and/or amount applicable for the destination country when displaying prices?

If I were to start selling services via the internet, would the rules be the same as for the supply of goods.

Thanks in advance

Fiona

Dear Fiona:

As you've pointed out, each member state has a threshold. If your sales to that member state exceed the threshold, you are obliged to have a VAT representative in that member state, charge VAT at the member state's rate and have your VAT representative file VAT in that member state. If sales do not reach that threshold, then you charge VAT at the UK rate and file locally. Please note that this is for business to consumer e-commerce. If you are selling to other businesses, then you do not charge VAT, but your customer must take responsibility for VAT in her country.

Of course, you need to make it clear to the customer, prior to the agreement to purchase, the actual cost of the order. In order to do this, you need to know where your customer resides. GiftsOfCourse, A Belgian online shop asks you to select your country and currency before entering the shopping area. This would allow them to calculate the appropriate VAT rate and include it in the listed prices. Amazon UK, on the other hand shows prices in pounds sterling, but after you indicate a delivery address, shows prices in local currency and including local VAT.

If you are selling services (and note that electronic products such as downloaded documents, music, software, etc are all defined as services in the VAT directive) on a business to consumer basis, then you always charge VAT at your own local rate, regardless of level of sales or thresholds. If the customer is another business, the situation is the same as with goods.

Dr. Ecommerce