Source Enterprise Ireland
The legislation and the rates of VAT that apply to online transactions should be understood by every company conducting business online. This section outlines summary details of:
- The main principles governing the taxation of
- Rules that govern the rates which apply to
different types of transactions
The most frequent taxation issue relating to eBusiness is VAT, and the appropriate rate which applies to goods bought and sold over the Internet.
For the purposes of VAT legislation, the first step is to determine whether the goods and services are "electronically supplied". A service which is not "electronically supplied" includes the ordering of a product - such as a CD or DVD - on the Internet, since this is simply the supply of a physical product.
On the other hand, an "electronically supplied service" includes:
- Digitised products generally (such as software and changes to or upgrades of software)
- A service which provides or supports a business or personal presence on an electronic network (such as a website or web page)
- A service automatically generated from a computer, via the Internet or an electronic network, in response to specific data input by the customer. This includes subscriptions to online newspaper and journals
- Services which are automated and dependent on the Internet or an electronic network for their provision
VAT affects three categories of eBusiness activity
- Supplies of physical goods, ordered over the Internet, to both business and consumers. If physical goods are ordered over the Internet, these are taxed at the rate applicable in the country of consumption. So, for example, goods supplied from Ireland to France are taxed at the French rate of VAT for the goods in question. Goods supplied to customers outside the EU are zero-rated.
- Online supplies of digitised goods and services from business to business. Digitised ("electronically supplied") goods supplied online from business to business are taxed at the rate of the country of consumption.
- Online supplies of digitised goods and services from business to consumers. Goods supplied online from business to consumer are taxed, as far as possible, in the same way as traditional economic activity. Therefore an Irish supplier of digitised goods to consumers in other EU member states will charge Irish VAT on the supplies.
New "business to business" place of supply rules for electronically supplied services cover two cases:
- EU business in one member state to EU business in another member state
- Non-EU business to EU business in any member state.
In both cases, the rules provide that the place of supply will be the place where the customer has established his or her business, and in these cases the customer will account for the VAT on the
reverse charge basis (self-assessment).
The new "business to consumer" place of supply rule for electronically supplied services provides that, where a non-EU business supplies to a private consumer in any member state, the place of supply will be the place where the consumer normally resides. Before this change, private consumers getting electronic supplies from non-EU businesses were not in the VAT net. This put non-EU suppliers at an unfair competitive advantage compared to EU businesses supplying to private customers in the EU. The main effect of the rule is that suppliers of these services are liable to register and account for VAT in every member state where they have private customers.
In addition, new legislation has changed VAT rules applicable to radio and television broadcasting services and to electronically supplied services. The earlier rules were deemed inadequate for taxing services consumed within the EU and for preventing the distortion of competition. The new legislation has been introduced to ensure that where these services are consumed in the EU, they should be taxed in the EU and not taxed if they are consumed outside the EU. So where radio and television broadcasting services are supplied from outside the European Community to a private consumer in the State, the place of taxation is the State. Where radio and television broadcasting services are supplied to businesses within the Community, the business customer is liable for the relevant VAT. Where electronically supplied services are supplied by non-EU businesses to private consumers in the State, then the place of taxation is the State.
Tax law is complex and it is strongly advised that businesses should seek advice from qualified, experienced tax specialists on all aspects of the tax treatment of online activity.
|From||To||Place of Supply|
|Business in Ireland||Business in Ireland|
| ||Business in other member state ||Other member state|
| ||Business outside EU||Outside EU (no VAT)|
|Private consumer in Ireland ||Ireland|
|Private consumer in other member state ||Ireland|
|Private consumer outside EU ||Outside EU (no VAT)|
|Business in other member state ||Business in Ireland||Ireland|
| ||Private consumer in Ireland ||Other member state|
|Business outside EU ||Business in Ireland||Ireland|
| ||Private consumer in Ireland ||Ireland|