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VAT Rates in Europe, e-commerce  and U.S. Sales Tax
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Here is a list of the standard rates of VAT in many European countries in January 2015

Normally, VAT is only one of several taxes on households and consumption. Some countries with a high incidence of VAT may have low excise duties on alcohol, motor fuel or cigarettes, so that the effective tax on consumption may be lower than it seems to be.

Whilst the Centre for Retail Research is happy to provide this list from its own research, it is primarily an aid to understanding and discussion. Its accuracy should not be relied upon in any negotiations or inter-state pricing. VAT rates and their application can and do change

Countries are listed in rank order of the size of their standard VAT rate. Not every country has been included, and no political or other conclusions should be drawn from a country's non-appearance in this list.

UK readers may note the ominous fact that the UK currently has one of the lowest standard rates in the EU.

European VAT Rates

Although countries like Denmark use VAT as a standard system - virtually everything apart from newspapers is sold at the standard rate - most countries apply more than one lower rate that is used on products seen as important to lower-income families or significant in other ways. There may be more than one reduced rate, as well as lower rates termed 'super reduced' and zero rates (in the UK, food, children's clothes are zero rated). Products often covered by non-standard VAT are usually books, newspapers, foodstuffs, pharmaceuticals, medical, and passenger transport. In some countries reduced rates may also include admission to cultural and amusement events, hotels, and accommodation.

There are also what the EU for some reason terms 'parking rates', reduced rates originally expected to be transitional, but have become permanent (European Commission, 2004, 2015).

VAT in UK Dependencies*

Jersey - no VAT but 5% general sales tax
Guernsey - no VAT
Isle of Man - VAT rate of 20%
Gibraltar - no VAT

(* possibly an incorrect term)

VAT in Russia
The standard rate in Russia is 18.0% with a reduced rate of 10% on food, livestock and children's goods.

VAT in Iceland
Standard rate is 24.0% and a 12% reduced rate on hotels, books, food and TV broadcasting.

E-Commerce and VAT in the UK and Europe
New EU regulations from 2015, incorporated into the legal codes of individual member states, have clarified how VAT will operate for ecommerce. Previously VAT was charged at the rate applying in the country of the seller, giving an advantage to countries and zones where VAT rates were low. In the UK, much music and entertainment (ie DVDs and CDs) was supplied from The Channel Islands because VAT was not charged there (or in the UK) if the goods were below a certain price level. This practice, which prejudiced the rights of mainland UK and foreign suppliers, was changed by legislation.

The New Rules
The new EU rules are understandable and consistent between countries, though they are very complex to operate.

The new rules affect retailers supplying electronic services to consumers (B2C). Instead of applying the old national rules, they are required to apply the VAT rate that exists in the country where the consumer is located. So a retailer selling music to consumers in France, Germany, Ireland and the UK will have to apply VAT rates of 20.0%, 19.0%, 23.0% and 20.0% respectively.

This means that:

  • The retailer needs to be sure of the exact country in which each customer resides (presumably when the order is placed). To prove the right rate has been charged, the retailer needs to demonstrate two evidences of location for every customer.
  • The precise rate of VAT is applied for each country: there are complexities for products like books, which are standard rated in some countries, given reduced rates or zero-rated, and e-books may be given different rates of VAT from paper books.
  • The retailer needs to register for VAT. The new Mini One-Stop Shop (MOSS) eliminates the need for retailers to register directly with the tax authorities of 28 different countries, but smaller retailers below the 81,000 UK VAT threshold were probably not charging VAT at all previously. These new rules have brought thousands of small businesses into the VAT system. In the UK smaller retailers have been told that although they are registered via MOSS they will not have to charge VAT on sales in the UK.

The new system is consistent, but is administratively burdensome, with many petty calculations and specific requirements needed to pass the inevitable audits.

US Sales Tax
In the US, sales tax is imposed on the final transaction in stores and services in 45 autonomous jurisdictions. If you exist (= have 'nexus') in a state (eg you have stores, inventory or employees there) you must charge sales tax there also. It is levied at a relatively low level, may not be included on the sales receipt or marked retail price. Exemptions such as food and clothing may vary from state to state.

Exciting possibilities include: stating delivery charges separately (often excluded from sales tax); reviewing where you accept delivery or ship from as, when you are located in a high Sales Tax area this places you at a disadvantage when selling into a low Sales Tax area; reviewing payment and sales errors, omissions, frauds and thefts as some of these can be offset against Sales Tax in certain states but not in others. Sales tax may also be paid by businesses on business equipment for their own use.

Alabama has a sales tax of 4%, food is not exempt; Arizona has a transaction privilege tax on gross receipts that allows cities and counties to add up to another 6% to the tax; California's sales tax is 10.75% (including local sales tax) on many categories, but it is 6% in Washington DC, Vermont and Florida. In Connecticut, California, Florida, and New York and many other states groceries and prescription drugs are excluded from the sales tax. In New York the state tax is 4% and local taxes add a further 3.0% to 4.75% and no tax is payable (theoretically) on low-cost clothing and shoes.

Sales tax is probably easy to apply by a single store or a chain within a state, but multi-state and e-commerce retailers face a maze of different regulations and rates of tax at state and local level. And you thought VAT was hard to understand!

US Online Retailers and Sales Tax
Amazon and a number of other large online retailers refused to charge sales tax to their clients and there were several court cases. They argued that because they were not located in a state (ie no 'nexus') they could not be required to collect sales tax. Tax collection then passes to the state authorities, which do not generally find it economic to recover small amounts from individual consumers: it has become an optional tax. By November 2014 however Amazon was collecting sales tax on behalf of 23 states, covering 69% of the US population - a great switch in approach compared to the late noughties (Beringer, 2014). Indeed it now rails against what it perceives to be a more liberal regime enjoyed by eBay, which does not generally pay GST. Amazon has been multiplying its warehouses across the US in order to provide an express service to clients so that it now has nexus in a large number of states. Amazon does charge VAT on its European sales.

Many states now support what they call the Marketplace Fairness approach which would apply the same GST obligations on online retailers as on physical stores. The only problem is probably an administrative one of a retailer needing to deal with 50 states and DC.

Bensinger, G. (2014) 'Which States Make You Pay an Amazon Sales Tax', Wall Street J., 1 Oct

European Commission (2004) VAT Indicators, Working Paper 2/2004, Luxembourg: EC.

EC (2014) VAT Rates Applied in the Member States of the European Union, Situation at 1 January 2015, Brussels: European Commission.

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