New EU VAT rules which are set to come into force on 1 January 2015, will change forever the way eBusinesses sell into the European Union.
The new rules mean that digital services sold directly to consumers in the EU will have to pay the local rate of VAT to the tax authority in the country in which the consumer is based. This means that it no longer matters where your business is based (inside or outside the EU), if it sells to EU consumers, then from 1 January 2015, it will be expected to collect and pay the local rate of VAT.
With 26 member states, this is no mean feat and the EU has given businesses the choice of individually collecting the taxes from each country and then paying them or using the Mini One Stop Shop (MOSS) portal, which is aimed at simplifying the procedure. Each EU country will set up its own portal and non-EU businesses can choose which country's portal to use. English speaking countries, the UK and Ireland have launched their portals, making them accessible to non-EU businesses wishing to use them.
This clearly creates a new admisnistrative headache for digital businesses selling into the EU but companies in the Channel Islands and Isle of Man could also benefit as it creates something of a fairer system for non-EU firms.
"I think that some positivity should be drawn from this as it puts Jersey and Guernsey on a level playing field," said Mehul Kotedia, Managing Directpr of Mekad Limited, a Channel Island-based accountancy firm.
"Previously companies looking to provide services into the EU had to establish a presence in an EU country of their choice and pay the VAT there. It then became an arbitrage process to see which country could do the best deal, it would be fair to say that Luxembourg became very popular for this type of business in the process. Now everyone pays the same VAT rates based on where their customers are. It effectively removes a trading barrier for non-EU jurisdictions such a Jersey and Guernsey, so we can now compete on equal terms."
Interestingly, Mehul sees this move by the EU as the beginning of a far greater move towards harmonised taxation.
"This is the beginning of the globalisation of taxation," he said. "The simplest way to do it is via indirect taxation. On the Web there is no place to hide so countries can check on which sites are transacting with their country."