A new EU Directive and Regulation modifying the rules for applying VAT to certain electronic services were adopted by the EU Commission on the 7th May 2002. Broadly speaking, these new rules will ensure that when electronic services are being supplied from outside the EU to consumers within the EU (B2C), they will be subject to EU VAT and that when such services are being exported from the EU to outside of the EU, they will be exempt from VAT.

The new rules will apply to the supply of digital services including software and computer services, as well as information and cultural, artistic, sporting, scientific, educational, entertainment or similar services, as well as broadcasting services over electronic networks.

Suppliers of such services from outside of the EU will have to charge VAT on supplies to consumers within the EU. Such non-EU suppliers will be able to register, using specific simplified arrangements with a national VAT authority of any one member state of their choice. They will then have to levy VAT at the rate applicable in the member state of the EU where the customer is resident. The member state where the registration takes place will then reallocate the VAT revenue to the member state where the customer is located.

It is proposed that this simplified system will be applied for three years, following the implementation of the proposal and then can be extended or replaced.

The new rules have effect from the 1st July 2003 by which date all member states will be required to have brought the necessary implementing legislation into force.

For further information or general enquiries contact: -
Patrick Ryan
Email: pryan@kilroys.ie
Telephone: +3531-439 5600
Fax: +3531-439 5601/439 5602

© Kilroys Solicitors 2002