I have an ecommerce web site that sells software distributed via
electronic download. I have 4 international sites that are localized
in these languages: German, French, Spanish, Japanese. Those sites
properly show pricing inclusive of the VAT tax. I also have an English
language version of the site that currently DOES NOT show pricing
inclusive of VAT.

MY QUESTION:
For my English language site, I get visitors from all over the world.
Are we required by law to show pricing on our product pages that
includes the VAT amount? This is tough to manage beacause the VAT
rates are different for each country. We would need to detect the
locale of the site visitor based on their brower setting and then
dynamicaly present pricing inclusive of VAT for that particular
market. Am I required to do this? Or, since this is my English
language site, am I expempt?

Hi marketing_manager, 

As a supplier of "electronically supplied services", VAT rates are a
little bit simpler than what you have described. I've copy and pasted
some relevant sections below, but please click on the link for full
details.

Orders from...
* EU countries: you only need to charge your local VAT rate
* Non-EU country:  you don't need to account for these.

> If you are a UK supplier of these services [electronically
supplied], you will no longer be required to account for VAT on
supplies to:
    * businesses in other Member States or
    * non-EU customers (except, in certain circumstances, where they
are used and enjoyed in the UK).
> When does the place of supply remain where the supplier belongs?
The place of supply remains in the country where the supplier belongs when:
    * the customer belongs in the same Member State as the supplier or
    * the customer belongs in a different Member State to his supplier
and receives the supply other than for business purposes (eg a private
individual or non-business organisation).
> Supplies to a private consumer or non business organisation
(charity, government body etc) in another EC country:
You, as supplier, account for UK VAT at the standard rate
Example:
A UK business supplies customised software to a charity in France.
This is subject to UK VAT at the standard rate."
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageOnlineServices_ShowContent&id=HMCE_CL_001173&propertyType=document

"The rules applicable to EU businesses supplying the same types of
services to final consumers in the EU remain the same. By these rules,
EU businesses charge VAT at the place where the operator is
established when making sales to final consumers. In other words,
rather than having to keep track of the various rates in the Member
States in which their customers are located, they only need to keep
track of the rate of the Member State in which they are headquartered.
For example, if they are established in Great Britain and they make
sales to France, Germany and Sweden, all they would need to worry
about is the British VAT rate of 17.5%."
http://www.accountancy-uk.co.uk/features.taf?_function=display&_section=Accountancy560

"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."
http://europa.eu.int/ISPO/ecommerce/drecommerce/answers/000090.html 

"As a result, U.S. and other non-EU firms are now required to register
with EU authorities and to levy, collect and remit the VAT tax
applicable in the customer?s place of residence, while their EU
competitors can register in just one jurisdiction and charge that
country?s VAT rate on all transactions regardless of the location of
their customers within the EU-15."
http://www.uscib.org/index.asp?documentID=3217 

Additional Links:

Electronically supplied services: A guide to interpretation
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageOnlineServices_ShowContent&id=HMCE_CL_000907&propertyType=document

Flowchart 1 
Electronically supplied services - where the supplier is a UK business
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageOnlineServices_ShowContent&id=HMCE_CL_001727&propertyType=document

Flowchart 2 
Electronically supplied services ? where the supplier is within the EU
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageOnlineServices_ShowContent&id=HMCE_CL_001730&propertyType=document

I hope I've helped you to sort this out but please note that this is
for information only, please consult an accountant for professional
advise on your specific situation. If you have any questions, please
post a clarification request *before* closing/rating my answer and
I'll be happy to reply.

Thank you,
hummer

Google Search Terms Used:

vat rate eu services internet
vat rate services ecommerce
ecommerce services rate eu countries
ecommerce vat what to charge eu countries
ecommerce vat what to charge non-eu
ecommerce software vat eu non-eu
vat ecommerce
vat uk website u.s. customers

I also search the HM Revenue & Customs website.

---

Request for Answer Clarification by marketing_manager-ga on 12 May 2005 11:38 PDT

Hummer,

Thanks for the answer, all good information. One area that I still
can't determine is the laws regarding the disclosure of the pricing.
Most of the info you provided is about the various rates and when they
need to be applied. I'm specifically wondering what the requirements
are for displaying the prices. We're already charging for VAT tax on
the back end, but we're confused about the laws on displaying prices
on our site.

One of your links provided a good example:

http://europa.eu.int/ISPO/ecommerce/drecommerce/answers/000090.html
"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."

My question: Is Amazon in compliance with the law despite the fact
that they do not show the VAT inclusive pricing until the checkout
process? Is it required that our site shows the pricing inclusive of
VAT for each market prior to the checkout process? Or can we simply
show it once the customer has provided their address when making the
purchase?

Thanks!

---

Clarification of Answer by hummer-ga on 12 May 2005 14:13 PDT

Hi MM,

The Amazon link was given as one example (VAT exclusive) while the
Belgian link in the same paragraph was given as another example (VAT
inclusive). I think both way are correct, as long as it is made clear
for the buyer which method is used (inclusive vs exclusive). Remember,
"local VAT rate" means the supplier's local rate, not the buyer's.

"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."
"...on a business to consumer basis, then you always charge VAT at
your own local rate"

This website gives both prices:
As of 24th June 2004, all new product pages added to the Cameras
Underwater website will display prices both inclusive and exclusive 
of VAT. Older pages will be updated in due course, but the process
will take some time. If a single price is displayed, it is inclusive 
of VAT unless otherwise stated; except in the case of books, which are
exempt from VAT, and secondhand items, which have variable VAT
content.
Orders from within the EC: Except for certain exempt regions (see
below), and certain exempt diplomatic and military personnel, EC
residents will be charged VAT at the UK rate (17.5% on most items).
Orders from outside the EC: If no VAT-exclusive price is given, the
VAT-inclusive price of a new product should be divided by 1.175 and
rounded up to the nearest penny. Books are not subject to VAT, and so
the full price applies in that case. Secondhand goods are usually sold
under the VAT Margin Scheme, the amount deductible varies between 0
and 17.5%, and a VAT-free price will be calculated at time of sale.
http://www.camerasunderwater.co.uk/company/pages/vat.html

The VAT Guide - All Sections
http://customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_CL_001596

Official consumer internet shopping advice from the e-retail industry
Ideally the retailer's advertised price should include Customs Duty
and / or VAT which they have prepaid to HM Customs and Excise, however
this is very rare and more usually there will be a small print section
indicating that the price is exclusive of local taxes and duties.
http://www.imrg.org/shopping_guidelines.pdf

Please let me know if you have any other questions.
hummer

A solid response with multiple links to good sites that back up the answer. Thanks!

The language of your site has nothing to do with this.  It depends on
where you have a physical presence.

Through which country(ies) are you accounting for European VAT? And
how do you handle GBP/EUR dual currency?

UK consumer law (and I think this is the same throughout Europe)
requires all prices in *consumer* transactions to be shown
VAT-inclusive. Business-to-business can be shown as 'plus VAT'.

Owain

Amazon does it correctly.  The price including VAT must be shown for
non-commercial customers, but on the receipt, the VAT must be shown
separately, so that a purchaser who can offset VAT paid has a document
for it.  There is nothing wrong with showing VAT separately on your
price list, but if you are possibly offering to persons who cannot do
this, you must also show the total.
If showing VAT for each item on your offering page/list is a clutter,
you could have a line somewhere that states that VAT of ..% is
included in the prices shown.
This might be especially appropriate if your products are directly
primarily at business customers, who might think that VAT was not
included.

Maybe this is documented in one of the links.  It applies even to restaurant bills.