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Tax and VAT Taxation Selling electronically is an obvious opportunity for a business to either reduce or avoid paying taxes outside the country where it is resident. Websites and servers through which sales are made cannot constitute a taxable presence in another country. A Website alone is not a fixed place of business and so does not create a taxable presence in another jurisdiction. Only if the business to which the Website belongs also owns or rents the server, will a taxable presence exist. In this instance, using an ISP to host a site allows a company to avoid having a taxable presence in any other country. Indirect Tax There are important considerations for indirect taxation (eg Value Added Tax or sales tax) such as when different rates of tax apply to goods and to services. A book (a product) may attract one rate of tax, but in digital form be considered a service by the tax authorities and so attract a different rate of tax. It should be noted that the EU recognises digitally delivered products such as software, digital music, digital books, etc as services. VAT Cross-border sales must comply with specific indirect taxation rules like Value Added Tax (VAT). Payment of VAT is determined based on what, where and to whom goods and services are sold. The rules within the European International Market differ for goods and services. The VAT liability on supply of goods is determined by the physical movement of goods when a sale takes place and by the status of the customer. The existing VAT system applies to goods purchased electronically and then delivered by traditional means. T> Where a business established in the EU sells goods to a private consumer within the EU, the VAT rules for mail order apply. These are based on thresholds. If a company's sales of goods to consumers in another Member State exceed that threshold, the company must hire a tax representative in that Member State, register for VAT in that Member State, charge customers VAT at that Member State's rate and have their VAT representative file VAT returns in that Member State. If sales are below the Member State's threshold, VAT is charged at the rate applicable in the company's country and is filed locally. There is currently a lack of harmonisation in VAT rates, with standard rates ranging from 15-25% in the EU. Some individuals and organisations are considered "non taxable persons". Guidance on tax matters can be found at
www.inlandrevenue.gov.uk. Please Note This leaflet is not an authoritative interpretation of the law and is intended only for guidance.
Trading Standards Division, 3rd Floor, Wallasey Town Hall, Brighton Street, Wallasey, Wirral CH44 8ED
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