of Offshore E-commerce
of Offshore E-commerce
Professional and Financial Services
Of all the products
that can take advantage of offshore e-commerce,
those that can be put into digital form are
probably the most ideal.
Subject only to
the technology constraints, a rather wide range
of products and services are suited to digital,
and thus, offshore, distribution. A partial
- Computer software
- Music, video,
- Booking services
(eg for travel)
including books, magazines, newspapers, directories
- Betting and
- Training courses
For any of these products and services, it used
to be clearly feasible to supply a customer
in a high-tax area without incurring any local
import duties, VAT or sales taxes, when these
might apply. However, national governments (and,
of course the European Union) have to some extent
put the kibosh on this- see below for details
of the EU legislation in question.
regarding corporation (income) tax is often
clearer for an offshore business: profits made
in an offshore jurisdiction will be untaxed
or very lightly taxed, so long as the offshore
trading entity itself is not a controlled subsidiary
of a company resident in a high-tax area. (See
our Tax Law
section for a detailed description of the taxation
Music is perhaps
the quintessential digital product, and the
one for which the most progress has been made
towards a digital future. The Mp3, and several
other formats, allow music to be stored, downloaded
and played in digital form.
For a while, it
seemed that the technology had bypassed the
legal framework of intellectual property and
copyright laws and conventions which govern
the commercial distribution of music; in particular,
it appeared to have bypassed the established
record companies and offers independent producers
and artists a means of direct distribution.
as Napster, which allowed the exchange of high-quality
music files between music consumers computers
gave rise in the early Noughties to alarmingly
rapid growth in illicit, or anyway, free copying
of music. After hoping for some time that these
problems would go away, the record companies
faced up to the inevitable and tried to suppress
Napster through the courts, a drive which was
ultimately successful, and resulted in Napster
relaunching itself as a legitimate - ie paid
for - file download service in late 2003.
EU's Digital Supplies VAT Directive
Directive 2002/38/EC, in force from 1st July
2003, changed the EU rules for charging Value
Added Tax (VAT) on the supply over electronic
networks (i.e. digital delivery) of software
and computer services generally, plus information
and cultural, artistic, sporting, scientific,
educational, entertainment or similar services.
These services are now taxed in the country
where the customer resides rather than where
the supplier is located.
the purpose of the Directive, the services concerned
are defined as "electronic services"
or "electronically supplied services".
The changes in their tax treatment will eliminate
a long-standing competitive distortion by ensuring
that both non-EU suppliers and EU suppliers
are subject to the same VAT rules when they
are providing electronic services to EU customers.
1st July 2003, EU suppliers were no longer obliged
to charge European VAT when selling on markets
outside the EU.
the introduction of the legislation, when a
non-EU supplier sells to business customers
in the Union (at least 90% of this market),
there is in practice no change, and the VAT
implications will be handled by the acquiring
company in the EU under self-assessment arrangements.
the non-EU supplier whose EU customers are non-business
individuals or organisations, from July 2003
there has been an obligation to charge and account
for VAT on these sales just as EU suppliers
have to do.
Commission claimed at the time of introduction
that the taxation framework contained a number
of elements designed to make the operation of
the tax as simple as possible and, in particular,
to ensure that it is not disruptive or onerous
for suppliers of digital services.
the Directive created differences in treatment
between different categories of businesses,
the Commission said that this did not amount
to discriminatory treatment, and that the Directive
is fully consistent with WTO obligations on
Sales and Distribution - Offshore opportunities
for marketing, sales and distribution to consumers
- Digital Sales and
Distribution - Offshore opportunities for
marketing, sales and delivery to consumers and
- Offshore Banking and
Financial Services - Offshore opportunities
for marketing and sales of financial products
and investment management.
- Offshore Corporate
Functions - Opportunities for corporations
to locate core functions offshore.