The legislation and VAT rates applicable to online transactions must be known and understood by any company carrying out internet sales activities.
The most common tax issue associated with e-commerce is VAT and the appropriate rate that applies to goods bought and sold over the internet. VAT / sales tax is charged by the Irish government at more than 18.70% of the gross value of the goods. How does it apply in e-commerce?
What is considered e-commerce?
The first step is to determine whether the goods and services are "supplied by electronic means". Ordering a physical product is not considered a service provided electronically.
In contrast, a "service provided by electronic means" includes:
- The sale of digitized products in general (such as software and software modifications or upgrades)
- A service that provides or supports a commercial or personal presence on an electronic network (a website, a page on a social network, etc.)
- A service generated automatically from a computer, via the Internet or an electronic network, in response to specific data entry by the customer (subscriptions to online newspapers and magazines for example)
- Automated services dependent on the Internet or an electronic network for their provision
VAT affects three categories of eBusiness activity differently
Physical goods ordered over the Internet by businesses and consumers are taxed at the rate applicable in the country of consumption. Thus, for example, goods purchased from France on an Irish site and delivered from Ireland to France are taxed at the French VAT rate, i.e. 20%. Goods supplied to customers outside the EU are not subject to VAT and therefore zero-rated.
The online supply of digitized goods and services from one business to another are taxed at the rate of the country of consumption. Thus, if the transaction takes place between two Irish companies, the national rate applies but if the digital product is used by a French company, the French rate of 20% applies.
Digitized goods and services sold online by businesses to consumers are taxed, to the extent possible, in the same way as the country's traditional economic activity. For consumers in other EU Member States Irish VAT therefore applies.
Changes in 2021
The extension of MOSS (Mini One Stop Shop) and new provisions concerning the obligations of electronic interfaces will come into force on July 1, 2021.
Businesses operating marketplaces or platforms may be considered for VAT purposes as the supplier of goods sold to customers in the EU by businesses using the marketplace or platform. They will therefore have to collect and pay VAT on these sales.
Tax law is complex. Businesses are strongly advised to seek advice from qualified and experienced tax professionals on all aspects of the tax treatment of e-commerce activities.