Online Marketers Face EU VAT Tax July 1

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Online marketers in the United States are preparing to collect value-added taxes on software, music and other online purchases delivered digitally to European residents July 1 under a directive unanimously passed by the European Union.


Prior to July 1, only companies based in EU member countries had to collect the VAT tax. The law does not affect digital sales to business customers, which account for about 90 percent of total sales and which already are covered by value-added-tax rules in the EU.


There are two options for non-EU companies that sell digitally delivered goods and services to comply. One is to establish a subsidiary in the EU and pay all VAT at the rate of the country of corporate residence. The other is to register with a VAT authority in at least one EU state and collect the VAT based on the customer's country.


Companies will have to levy charges of 15 percent to 25 percent, depending on the country, on select Internet transactions such as software and music downloads, monthly subscriptions to an Internet service provider or on any product purchased through an online auction in the 15-member EU.


According to reports, America Online is moving its European offices to Luxembourg, which has a low 15 percent VAT rate, and does not plan to raise its prices. EBay, reports said, will pay the VAT in its smaller European operations such as France and Italy but will make customers pay in the United Kingdom and Germany through higher fees.


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