There is a special VAT registration scheme for non-EU businesses, such as private individuals and non-business organizations, that provide 'electronically supplied service' to EU consumers. This scheme offers a discretionary, simplified means of registering and accounting electronically for EU VAT, effective July 1, 2003.
An 'electronically supplied service' is a service that, in the first instance, is delivered over the Internet or through an electronic network. These services include the provision of digitized products, such as software, and the provision of any service which provides, or supports a business or personal presence on an electronic network; for instance a website or a Webpage.
The special scheme was introduced when the changes to the EU place of supply rules for these services took effect from July 1, 2003. On that date, these services, when supplied by non-EU businesses to EU consumers, became subject to VAT in the Member State of the purchaser. Under the normal rules, non-EU businesses are required to register separately and account for VAT in each and every Member State in which they supply goods. This means that a Canadian business with customers in the UK, and France would have to register in, and submit declarations to each of those Member States. The special scheme has simplified this procedure.
This special scheme, in the place of the normal rules, offers eligible non-EU businesses the option of registering electronically in a single Member State of their choice and accounting for VAT on their sales of electronically supplied services to all EU consumers on a single quarterly electronic VAT declaration which provides details of VAT due in each Member State. This declaration is submitted with payment to the tax administration in the Member State of registration and that State then distributes the VAT to the Member States where the services are consumed.
For example, under the special scheme, a US business with customers located in the UK, Italy and Spain, registers for the special scheme in the UK. The US business charges UK VAT to its UK customers, Italian VAT to its Italian customers and Spanish VAT to its Spanish customers. Under this scheme, the business enters the VAT for each country at the appropriate place in the electronic declaration. Then it sends the declaration electronically along with payment to HM Customs and Excise (HMRC, the authority responsible for collecting UK tax revenue). This authority retains the UK VAT. Afterward, passes on the Italian VAT to the Italian authorities and similarly the Spanish VAT to the Spanish tax authorities.
Businesses can register under the special scheme if they provide 'electronically supplied services' to consumers, being private individuals or non-business organizations, that are members of the EU. The business registering for this must not be an EU-member-state business and cannot be registered for VAT under the normal rules in any Member State. In the UK, Section 3A and Schedule 3B of the VAT Act 1994 provide for the special scheme. They put into action Article 26c of the EC Sixth Directive, added by Article 3 of the VAT on E-Commerce Directive (Co.Dir.2002/38/EC).
Non EU business may register electronically for the special scheme in the UK, at the dedicated website. This site guides one through an electronic registration process which includes selecting a user name and password to identify a Non-EU business for the purposes of completing and submitting declarations electronically.
For each EU member state in which business has supplied electronically supplied services, the supplier must state on the declaration:
1. the total value of all supplies in the period excluding any VAT
2. the VAT rate which applies and
3. the total amount of VAT payable.
The business must also show the total amount of VAT payable in all member states.
Declarations and payments are required to be submitted in 'sterling'. The Non-EU business can use the special VAT scheme if they make supplies to business customers as well as private consumers in the EU, but subject to some conditions. However, they are not required to charge and account for VAT on electronically supplied services supplied to EU businesses.
A non-EU business recover VAT on purchases under the special scheme. This is because the special scheme provides only for payment of the VAT due on sales to the EU customers without any deduction of EU VAT incurred on purchases. Nevertheless, a business may reclaim any VAT that it has paid on goods and services used for the purpose of their taxable activities that fall under the special scheme from the Member State where that VAT was paid, under the terms of the EC 13th Directive.
