VAT aspects of web-based pricing systems

The following are some of the important points that should be borne in mind when designing a pricing system for web-site sales:

* The web site should be able to distinguish between business and non-business customers because different VAT rules apply to each of these categories. Sales within the country of the vendor will carry VAT charged by the vendor irrespective of whether the customer is a business or not. However, in the case of sales to another EU country, the vendor must be able to identify a business customer by taking their VAT number. The vendor will then be able to “zero” rate that transaction, the customer will apply the “reverse charge” or tax shift mechanism.
* In the instance where the customer in the other EU country is not a business (known in VAT jargon as a “non-taxable” person), in the case of most services the vendor will apply the VAT rate of his own country.
* When goods are sold to consumers in another EU country, there is another “nasty” lurking around the corner known as the “VAT distance-selling regime”. Up to a certain sales threshold, the vendor charges the VAT of his country, but beyond that he must register in and charge the VAT of his customer’s country.
* Although finance and insurance services are generally “exempt” when provided from the UK, it is still necessary to keep track of the location of the customer as this affects VAT input tax recovery.
* It may be necessary to block sales from a website in one country such that persons in another country cannot buy from that site, but are guided to their own country web site.
* Although there is a now a VIES website for confirming the authenticity of VAT numbers in certain countries, there is still no guarantee for the vendor that his particular prospective customer is associated with the quoted VAT number.

Unlike the United States, there is a legal requirement in many European countries that prices must be quoted inclusive of VAT and other applicable taxes, tariffs and duties. This obligation may pose legal problems for web-based vendors. Therefore, it is essential VAT considerations are taken into account before a web site is put in place.