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Research by Country/Region January 17, 2018  
UNITED KINGDOM: CUSTOMS, TAXES and DOCUMENTATION REQUIREMENTS for IT PRODUCTS and SERVICES IMPORTS

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A. Is this country a member of the Information Technology Agreement?

B. Customs documentation requirements for IT products

C. Software: duties and taxes, updates, licenses, electronically delivered

D. IT services: tax treatment and other regulations

E. Refurbished, used, or repaired computer equipment imports


A. IS THIS COUNTRY A MEMBER OF THE INFORMATION TECHNOLOGY AGREEMENT?
YES - All EU Member States are signatories to the Information Technology Agreement (ITA). The following 15 countries are Member States of the European Union: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden, Luxembourg, and the United Kingdom.

Signatories to the Information Technology Agreement (ITA) have eliminated their import duties on a wide range of information technology products, including software and computer hardware. For more information on the ITA, and exact tariff elimination schedules of signatories, clickhere.
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B. CUSTOMS DOCUMENTATION REQUIREMENTS FOR IT PRODUCTS

What are the documentation requirements for the physical import of software? For other information technology products?
(This country is a member state of the European Union. This issue is decided at the EU level.) When physical goods with software included are imported, the normal customs requirements as regards the supply of supporting documentation apply. Such requirements are usually limited to a document in support of the customs value, which in most cases need only be the relevant invoice.
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C. SOFTWARE: DUTIES and TAXES, UPDATES, LICENSES, ELECTRONICALLY DELIVERED DUTIES AND TAXES ON SOFTWARE IMPORTS

Are duties assessed on the intellectual property of the software or on the medium on which is it presented?
(This issue is decided at the EU level.) Customs Duties – these are not applied to IP, only to certain physical media on which the software is carried. These media are specified under the HS codes.

Value Added Tax (VAT) is a tax on consumer spending so as with Sales Tax it is private consumers who end up paying it. However, while the Sales Tax is only applied at the point of sale, VAT is applied at all points along the value chain. Each trader along the chain collects VAT on sales and is charged VAT on its purchases. In its VAT return the trader declares any eventual surplus or deficit to their national authorities and either pays or is reimbursed the difference. The effect of offsetting purchases against sales is to impose the tax on the value added at each stage of production – hence value added. The private consumer who is not registered for VAT absorbs the tax as part of the purchase price. Businesses therefore account for VAT rather than pay it.

VAT is applied to software imports in the UK. Off the shelf software supplied via a physical medium such as a disk is treated as a good for VAT purposes while customized software is treated as a service. When non-EU established US companies export software to the EU the following ground rules apply:
  • Goods B2B – the importer of record accounts for the VAT
  • Goods B2C – the exporter does not include VAT in the price but local VAT can be collected from the customer by the deliverer.
  • Services B2B – VAT is chargeable and the business customer accounts for it using the Reverse Charge technique or Self-assessment.
  • Services B2C – for the moment consumers do not have to pay VAT on downloadable software. This will change from 1 July 2003 when the new VAT regime for Electronically Supplied Services comes into force. From that date non-EU established US exporters of downloadable software to EU based final consumers will have to collect VAT on these sales.
    Supplemental information on the VAT is listed below. This information is provided by: Ivor Whitworth, Commercial Specialist: Ph: 44 20 7408 8047; email: ivor.whitworth@mail.doc.gov

    i. Sale of Shrink-Wrap Software in UK Retail Outlets
    Computer software, for the purposes of VAT, comprises both goods (the carrier medium) and services (the instructions/data contained therein). Import VAT is payable on both the goods element, and on the services element. However, where the goods element of the computer software and the services element of the computer software are separately itemized, any VAT that would be chargeable in respect of the services element is currently disregarded. However, this may change in the future such that import VAT may also be chargeable upon the services element. In this case the VAT would be for the retailer to account for and charge under the so-called reverse charge procedure.

    The onward sale by the UK retail outlet of shrink-wrap software is a supply on which VAT must be charged. A business customer purchaser may be able to recover this input VAT. A non-business customer purchaser will not be able to recover the VAT that he has paid.

    ii. Mail Order Supply
    There are two alternatives that could apply to mail order. Firstly, the same rules that apply on the importation into the UK to a UK retail outlet (above) may apply, such that VAT would be payable on the importation of the goods element of the computer software. Again, technically, VAT would be chargeable on the services element of the computer software, but currently Customs & Excise are ignoring this aspect. Where mail order is to a non-business customer, the customer will pay VAT on the computer software's importation and will be unable to recover this.
    Alternatively, and depending upon the exact mail order arrangements in place, a different set of VAT rules, the distance selling rules, may apply.

    iii. On-line Supplies
    To business customers: Where the supply is a supply to a retailer/distributor, i.e. one is dealing with a business buyer, VAT will be applied to the purchase, but the purchaser (retailer/distributor) will have to account for it (under the reverse charge procedure) and there will be no liability on the US supplier to charge and account for VAT.

    To non-business customers: Where the supply is made on-line (not just the agreement to supply, with physical fulfillment occurring later), recent new rules require the supplier to register for VAT in at least one EU country, charge and collect VAT on online supplies, payable depending on the rates applicable for each EU-based on-line customer, and periodically remit the VAT collected to the authority in the country where registered (who will distribute it). US businesses do not like these new EU-wide rules. Failure to comply with them may have limited immediate effects, but on seeking to establish a presence in the EU later, those companies may find themselves facing back taxes and fines. Any VAT so charged would be payable by the customer.

    Is customized software treated differently than packaged software?
    (This issue is decided at the EU level.) For customs duty purposes customized software is not treated differently from off-the-shelf software.
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    1. IMPORTS OF SOFTWARE UPDATES

    What are the customs duties and tax implications for software sold with updates when the full sales price, including cost of updates, is shown on the original commercial invoice? Are duties and taxes paid on that amount? What happens when the updates are sent at a later date? Are duties/taxes applied again? If so, based on what value? How should information presented on the commercial invoice for the original and subsequent shipments to avoid paying duties/taxes more than once on a single sale?
    (This issue is decided at the EU level.) In most cases, updates sent at a later date are not dutiable or taxable if the importer can present documentation showing that the value of the updates was included in a previously processed commercial invoice. If updates are sent at a later date, and there IS NOT a clear notation on the original commercial invoice, custom duties and taxes will have to be paid again.

    At the time updates are sent, it is important to attach a copy of the original invoice. The original commercial invoice should clearly specify all the relevant aspects of the contract to facilitate customs charges on the original shipment as well as update shipments. The original commercial invoice should include the right to receive updates, the expected number of updates, and state that the value of the updates is included in the value of the original commercial invoice. Although it is often impossible to know the total number of updates in the first delivery, the original invoice should state the value and total number of shipments expected to follow. The updates that ARE NOT included in the original invoice will be subject to import duties and taxes on a value that will be determined independently.

    The charges that apply to the delivery of products on the original shipment (including the expected updates) are:

    1) Customs tariff/duty on the medium,
    2) VAT on the value of the medium,
    3) VAT on the value of the intellectual property.
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    2. SOFTWARE LICENSES: CUSTOMS CLASSIFICATION, IMPORT DUTIES, TAXES, OTHER

    Are software licenses classified in Harmonized System 4907?
    (This issue is decided at the EU level.) Software can be licensed for reproduction in the European Union. Documents, including licenses, are usually classified in tariff heading 4907. The software license may be shipped separately from the delivery of the product. As a right that is transferred via a paper medium (in most cases), licensing is not considered a sale, as such. Items classified in 4907 are duty-free as are software products classified under 8524.

    Are import duties/taxes applied? If so, on what cost/price base are they levied?
    (This issue is decided at the EU level.) Customs duties are applied only to physical products that cross a border. However, customs authorities would normally be interested to know whether a payment stated to be made in respect of a 'document' might indeed refer in practice to a payment for imported goods. A copy of the invoice accompanying the physical delivery of the product can serve to clarify the transaction involving the separate shipment of the license.

    Duties are assessed on the C.I.F. value; VAT is levied on the C.I.F. plus duty (where applicable) value of the software/license.

    For more specific questions in this area please contact the Commercial Service at the US Mission to the EU.
        Stephen Alley
        Deputy Senior Commercial Officer
        Phone: 011-32-2-508 2755
        Fax: 011-32-2-513 1228
        Email: Steve.alley@mail.doc.gov

        Martin Whitehead
        Commercial Specialist
        Phone: 011-32-2-508 2624
        Fax: 011-32-2-513 1228
        Email: Martin.whitehead@mail.doc.gov

        Website: http://www.buyUSA.gov/europeanunion
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    Are withholding or other additional taxes applied on software licenses? If yes, how?
    As a matter of domestic UK law there is a withholding tax on patents and copyright. In the context of a US licensor, it may be possible under the US/UK Double Tax Treaty that this withholding tax is reduced to zero. However, a UK resident who pays income subject to withholding tax to a US resident is not entitled to apply the zero rate under the US/UK Double Tax Treaty without prior authorization from the UK Inland Revenue.

    If a U.S. license agreement is included in the packaging or is part of the installation/registration of shrink-wrapped software imported from the United States, would that agreement be binding on consumers in your market? If so, would U.S. or local laws pertain?
    In general, license terms seen after the point of purchase are not binding on the purchaser – the deal is already done, and those terms don't form part of it. Terms viewable on the outside of packaging at the point of purchase, or displayed on-line prior to purchase commitment, are seen early enough to form part of the deal. Terms seen only after opening packaging, or loading software to install it, are seen too late. Requiring registration is ineffective (unless stated as necessary early enough) but where a customer does register, then at that stage, provided registration confers fresh benefits, it should be possible to effectively impose license terms which were not shown prior to purchase.

    If a license is silent about which laws pertain, then English law will govern. However, the licence can state otherwise. In general, US law can be used to govern a contract (and software license), but local laws will still have some (sometimes drastic) effects:

    1. Unfair Contract Terms – limitations on liability and exclusions of implied warranties are effective only if 'reasonable'. What is reasonable is a complex question, but blanket exclusions of implied terms with no reasonable replacement remedy are probably ineffective. Terms are implied that you have the right to grant the license, and that the licensee will have 'quiet enjoyment' – such terms cannot be excluded and any words that would have that effect will be struck.

    Limitations on liability to the purchase price are commonly seen, and probably effective, but may not always be – for example where the damage caused is extensive and this was foreseeable. However, some kinds of loss cannot be excluded (e.g. injury resulting from negligence) and it is wise to make clear that any cap does not cover such kinds of liability; otherwise, again, the cap may be ineffective. Where ineffective, the cap will be treated as not there – leaving a license with unlimited liability (even where the losses are of the kind which may be limited).

    Where US law is agreed to govern the contract, the foregoing rules do not automatically apply, but the court can apply them if it thinks US law was chosen wholly or mainly to evade their effect.

    (NB. There is some upside. Where English law is used to govern a contract between a US supplier and a European (non-UK) customer, the above rules do not form part of English law, which is therefore fairly similar to US law, in permitting extensive restrictions on supplier liability. For this reason, where a (non-UK) European customer refuses US law, English law is often an excellent second best for a US-supplier.)

    2. Consumer Law – the foregoing (section 1.) applies whether or not the customer is a 'consumer'. Where the customer is a consumer, implied terms cannot be excluded even where it might be thought 'reasonable' to do so. Also, no terms will be effective unless expressed plainly and clearly, and choice of a foreign law (e.g. US law) to govern the contract will not remove the consumer's rights.

    The above points are the two main ways that English law differs from US law for packaged software licensing. In other respects, such as IP protection, US terms – though not ideal – are broadly effective to control the user's rights. But copying for back-up, and any decompilation necessary for achieving interoperability with other software, must be allowed – and as explained above, where a restriction seems to over-ride a statutory right, the provision stating restriction is simply crossed out – leaving no restriction at all.

    Note also that where conventional channels are used, the customer is only dealing with the retailer, and the ultimate IP rights holder is one or more links up the supply chain, and therefore has no immediate contract to enforce or sue on. Regardless of this, the buyer is only getting a license under IP rights to do limited things, and the IP owner always has statutory rights to enforce those limitations even without a direct contract. However, shrink-wrap terms usually contain other provisions – e.g. limitations on tortious (non-contract) liability. With correct wording and procedures it is possible to establish a right directly to enforce these non-IP terms of the shrink-wrap contract, but this will not happen automatically. The position is generally easier (from a legal view) where the software is bought and supplied on-line – although in such cases, other issues arise (including data privacy, and compliance with e-commerce laws).

    In conclusion, it is generally not advisable to license UK-based businesses or consumers on unamended US shrink-wrap terms.
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    3. SOFTWARE DELIVERED OVER THE INTERNET/ELECTRONICALLY DELIVERED SOFTWARE

    Are taxes applied to software delivered to the end-user over the Internet? If so, on what value?
    (This issue is decided at the EU level.) The EU treats downloadable software as a service. When US companies sell such software to EU business customers they do not include VAT in the price – it is the customer that handles the VAT accounting using the Reverse Charge technique or Self-assessment.

    Up until 1 July 2003 non-EU established exporters of downloadable software to EU based private individuals will not have to charge VAT on their sales. From that date the VAT must be collected at the rate applicable in the customer’s VAT jurisdiction. Non-EU based suppliers can choose which EU Member State (MS) tax authority they deal with for VAT purposes. They must then register with that authority by providing information including name, postal and electronic addresses, web sites, national tax number and a statement that the company is not already identified for value added tax purposes in the EU. The chosen tax authority will then provide the supplier with a dedicated number by email after which the supplier must submit a quarterly VAT return that includes details on the total value of sales and tax collected in each MS. The supplier remits tax collected to the tax authority that is then responsible for reallocating the VAT revenues among the other MS.
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    Would the situation be different if this software were instead delivered to a distributor who has a license to produce (replicate) and sell the software?
    (This issue is decided at the EU level.) For sales from the US to the EU, the B2B scenario outlined above would apply - it would be the locally VAT registered distributor that would account for the VAT. The distributor would then charge VAT for onward sales of the software to private individuals (B2C).

    What are the documentation requirements for the electronically delivered import of digitized products (i.e. software, movie downloads) over the Internet or other networks?
    (This issue is decided at the EU level.) No customs documents requirements.

    Must an electronically delivered software import be accompanied by a physical shipment of the same product?
    NO
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    D. IT SERVICES: TAX TREATMENT AND OTHER REGULATIONS

    Are services (i.e. training, set-up, etc) relating to the sale of software taxed? If so, at what rate and based on what value?
    (This issue is decided at the EU level.) These services would normally be subject to VAT, but on the assumption they are being supplied to a taxable person*, the recipient would account for the tax under a Reverse Charge or Self-assessment procedure. Tax would be calculated on the amount of the consideration.

    Are U.S. IT solution providers permitted to send personnel into the country to set up hardware/software-related systems?
    The official guidance from the Home Office (HO) is that it is possible for overseas software companies to send employees to the UK as business visitors for the following purposes:

    Attending meetings/conferences;
    Arranging/negotiating/signing deals;
    Fact finding missions;
    Purchase trade goods;
    Receive training;
    Install debug or enhance products - provided no equivalent service is already available here.

    It is important to note that any salary is still received abroad and that no selling of goods or services to the public is involved.

    Are special visa, work permits, and/or professional certification by an accredited body required?
    The rules relating to visitors are generally aimed at tourists. The additional guidance relating to Business Visitors is tucked away in HO policy documents and may therefore not be well known to all immigration officers.

    In certain circumstances therefore, it may be easier to obtain work permits even if - strictly speaking - they are not absolutely necessary. Such circumstances would include where the overseas company has set up a UK office or where the employee is making repeated trips to the UK or needs to spend more than 3-4 weeks in the UK. Please note these examples are not exhaustive, just the more common scenarios we come across.

    If traveling as a visitor it is advisable for the employee to carry a letter from the Company spelling out the purpose of the visit and the circumstances surrounding it. There is a fine line between what is permitted as a visitor and what will arouse suspicion of an immigration officer.
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    E. REFURBISHED, USED, OR REPAIRED COMPUTER EQUIPMENT IMPORTS

    1. REFURBISHED COMPUTER EQUIPMENT

    Is the import of refurbished computer hardware, parts, and accessories (including toner cartridges) permitted?
    (This issue is decided at the EU level.) YES

    If so, what are the documentation requirements?
    (This issue is decided at the EU level.) The normal customs requirements as regards the supply of supporting documentation apply. Such requirements are usually limited to a document in support of the customs value, which in most cases need only be the relevant invoice.

    What value should be shown on the invoice?
    (This issue is decided at the EU level.) EC customs rules do not specify the form or content of commercial invoices (although for VAT purposes the provisions of the 6th VAT Directive will be relevant – this specifies “the price exclusive of tax and the relevant tax as well as any exemptions”). Customs value is usually determined on the basis of the relevant facts of a commercial transaction (i.e. the cost of the product, insurance, and transportation). The invoice usually provides the necessary information, subject to the importer's declaration in relation to customs value in the relevant customs document.

    How are duties and taxes assessed?
    (This issue is decided at the EU level.) In the same way as for all other imports of goods. Duties, where applicable, are assessed on the C.I.F. value; the VAT is assessed on the C.I.F. value plus applicable duties. For general customs related information, it is useful to refer to a customs information source (e.g., trade specialist, EC customs administration information center, website of most EC customs administrations) for more details.

    2. USED COMPUTER EQUIPMENT

    Is the import of used computer hardware, parts, and accessories (including toner cartridges) permitted?
    (This issue is decided at the EU level.) YES

    If so, what are the documentation requirements?
    (This issue is decided at the EU level.) The normal customs requirements as regards the supply of supporting documentation apply. Such requirements are usually limited to a document in support of the customs value, which in most cases need only be the relevant invoice.

    What value should be shown on the invoice?
    (This issue is decided at the EU level.) EC customs rules do not specify the form or content of commercial invoices (although for VAT purposes the provisions of the 6th VAT Directive will be relevant – this specifies “the price exclusive of tax and the relevant tax as well as any exemptions”). Customs value is usually determined on the basis of the relevant facts of a commercial transaction (i.e. the cost of the product, insurance, and transportation). The invoice usually provides the necessary information, subject to the importer's declaration in relation to customs value in the relevant customs document.

    How are duties and taxes assessed?
    (This issue is decided at the EU level.) In the same way as for all other imports of goods. Duties, where applicable, are assessed on the C.I.F. value; the VAT is assessed on the C.I.F. value plus applicable duties. For general customs related information, it is useful to refer to a customs information source (e.g., trade specialist, EC customs administration information center, website of most EC customs administrations) for more details.

    3. REPAIRED COMPUTER EQUIPMENT

    Are duties and taxes assessed on the re-import of repaired computer equipment?
    (This issue is decided at the EU level.) Customs duties and taxes are charged on re-imported goods that have been subject to repair or processing abroad. However, the EC customs rules allow for the non-taxation of the previously exported goods, provided certain conditions are met.

    How should the commercial invoice appear?

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    RESPONSE INFORMATION

    The responses to issues that are decided at the EU level were prepared by U.S. Department of Commerce/Commercial Service at the US Mission to the EU. For more specific questions to any of the EU level issues, please contact:
        Stephen Alley
        Deputy Senior Commercial Officer
        Phone: 011-32-2-508 2755
        Fax: 011-32-2-513 1228
        Email: Steve.alley@mail.doc.gov

        Martin Whitehead
        Commercial Specialist
        Phone: 011-32-2-508 2624
        Fax: 011-32-2-513 1228
        Email: Martin.whitehead@mail.doc.gov

        Website: http://www.buyUSA.gov/europeanunion

    The responses to issues that are country specific, and not decided at the EU level, were prepared by the U.S. Department of Commerce/Commercial Service in London, United Kingdom, in winter/spring 2003. For further clarification please contact:
        Ivor Whitworth
        Commercial Specialist
        Phone: 44 20 7408 8047
    Email: ivor.whitworth@mail.doc.gov

    * A taxable person can be an individual, a partnership, a company, or any other legal entity that independently carries out an economic activity.

    Special Note: The above information is intended to serve only as unofficial guidance. In seeking to obtain government rulings in specific cases, it will often be necessary to refer to special laws, separate regulations and announcements, and case-by-case decisions by the government. Beyond the general guidelines shown above, legal counsel should be retained at an early stage of consummation of a major procurement contract, and before entering into any legal commitments.
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