ECOFIN sets new rules for VAT on B2C e-commerce

Funchal, 3rd of January, 2008 – The European Council has agreed, on the Council Meeting which took place in Lisbon on the 4th of December 2007, on a package of new VAT arrangements for B2C telecommunications, broadcasting and electronic services, which will be implemented after 2015.

The new package sets new rules so that the VAT applied on business to consumer supplies of telecommunications, broadcasting and electronic services takes place in the member state where consumption occurs rather than in the member state where the company is headquartered, as it is currently the case.

To simplify the VAT arrangements, a "one-stop" system will be introduced to allow companies to fulfill in their home member state a single set of obligations for registrations, declarations and payments, including services provided in other member states where they are not established. VAT revenue will then be transferred from the country where the supplier is located to that where the customer is based, whose VAT rates and controls will be applicable.

The new rules and the one-stop scheme will be implemented as of the 1st of January 2015. The member state of establishment will, until 1 January 2019, retain a portion of VAT receipts collected through the one-stop scheme. This portion will amount to 30% from 1 January 2015 until 31 December 2016, and 15% from 1 January 2017 until 31 December 2018.

The Commission will be asked to report on the feasibility of the new rules before their entry into force.

Conclusion

Companies established in Madeira will therefore continue to benefit from the lowest VAT rate in the E.U. (15%) until 2015, in addition to the preferential tax regime of the International Business Centre.

After this date, the new package will enter into force and introduce a leveled playing field between all member states in what concerns VAT, but Madeira will continue to be one of the most attractive regions to set up telecommunications and e-business activities due to its state-of-the-art telecom infrastructure, its low operational costs, the availability of skilled labor and the reduced corporate taxation.