EU Directives in 2023
This page summarizes the key EU directives applicable to businesses trading across borders in the EU and to multinationals entering the European market.
- When an EU company receives interest and dividend payments from an EU subsidiary then i) the subsidiary does not suffer withholding tax on those payments and ii) the parent company does not suffer corporation tax on that income;
- Tax paid on subsidiary’s profits counts against the corporate tax due on the dividends received by its EU-based parent company
Value Added Tax directive
- An EU company must add VAT to its sales invoice when selling goods to EU customers. Where the sales to a particular Member State exceed the relevant threshold, the VAT rate will be the one prevailing in the country where these products are delivered. Otherwise, VAT is charged at the seller’s rate;
- EU service companies must also add VAT to their sales invoices when selling services to EU customers. In this case, the VAT rate will be the one prevailing in the country where these services are performed;
- Sales of goods and services by an EU resident company to non-EU customers do not attract VAT;
- Non-EU companies selling goods to EU customers do not need to charge VAT on their sales invoices, as import taxes will apply instead;
- When a non-EU company provides a service to an EU-based business, there is no need to charge VAT on their invoices;
- When a non-EU company sells digital services to customers in EU countries, VAT for the receiving country must be added to the sales invoice. Digital sales include i) music downloads ii) apps iii) software and iv) subscriptions;
- All businesses offering digital services to EU customers need to register with the VAT Mini One Stop Shop (VAT MOSS) in their home country (if the business is European) or an appropriate EU country (if the business is from outside of the EU). The VATMOSS will distribute collected VAT payments to the right countries;
- To file accurate VAT returns, our Clients must track the residence of each customer and charge the customer the amount of VAT payable in that country. Evidence of the location of each customer must be kept for 10 years for digital services, and 6 years for other sales.
Employment and labour law
Transfer of Undertakings Directive
- This Directive governs the movement of employees between employers within the EU because of i) an internal transfer (e.g. in the event of a sale or merger) or ii) a change in service provider (e.g. transfer of an outsourced internal function like IT support between third parties);
- Our Clients must ensure employee rights are maintained between the transferor and transferee. Pay particular attention to i) accrued pension costs and ii) severance or redundancy packages.
Working time directive
- Weekly average working hours for EU employees must not exceed 48 hours in most industries. However, our Clients may ask their employees to waive this rule voluntarily;
- Workers in the EU are entitled to i) four weeks of paid leave each year or ii) the number of weeks granted by the relevant national law, whichever is higher;
- If a worker is on duty for six or more hours, the employer must grant him or her a rest break during working hours.
Temporary agency worker directive
- Temporary workers enjoy the same rights as permanent employees when it comes to holidays, sick pay, hours and remuneration.
Investments and fund management
Alternative Investment Fund Managers Directive
- The AIFMD affects collective investment companies that i) manage assets worth at least €100 million and ii) invest in non-standard financial products (i.e. anything more complex than stocks, bonds and cash). Such companies will include hedge funds, private equity firms and real estate funds;
- Alternative investment fund managers (AIFMs) may gain authorisation in one EU country and then market or manage their funds in other Member States without the need for extra licensing;
- The Directive includes rules requiring i) publishing compensation details for key staff ii) limits on, and standards for, the delegation of the fund manager’s authority iii) minimum capitalization levels and limits on the use of leverage iv) publishing the valuation methodology to investors and v) valuing the assets at appropriate intervals, no longer than a year.
Markets in Financial Instruments Directive (MiFID)
- MiFID allows our Clients to market their investment funds in other EU countries without increasing their compliance burden;
- Thanks to this directive, our Clients can be regulated in one EU State and offer their products across the region while working with one regulator and one set of rules;
- While the passport features of AIFMD apply only to large funds dealing in alternative assets, MiFID applies to European investment funds of all types and sizes.
- The UCITS directives permit the marketing of collective investment funds to retail investors across the EU with the aim of creating a single market for funds;
- UCITS funds mostly hold i) transferable securities ii) money market instruments iii) financial derivatives and iv) units in other collective investment schemes. They may not directly acquire precious metals.
Money Laundering Directive
- EU law requires our Clients to run identification checks on their customers if the Clients run i) credit institutions ii) financial services companies iii) real estate firms iv) law firms v) accounting and tax firms vi) trust companies and vii) casinos;
- These businesses must ascertain and verify the i) identity of the customers ii) beneficial owner of the property involved iii) nature of the intended business relationship and iv) source of the funds used;
- Our Clients may carry out more basic checks on i) publicly listed companies and ii) businesses subject to this directive or its equivalent;
- On the other hand, stronger checks and controls are required for customers who pose more risk of involvement with money laundering or terrorist financing. Risk factors include i) the customer not being present for identification ii) the customer being based abroad and iii) the customer or beneficial owner being “politically exposed”.
- It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfill those obligations annually. Let us know if you need Healy Consultants help to clarify your local and international annual tax reporting obligations;
Rules for online businesses
Directive on consumer rights (distance selling regulations)
For online business-to-consumer sales, the following rules apply:
- Ecommerce sellers may not steer customers into buying add-on products or services through pre-ticked boxes or similar means;
- Before the order is complete, EU merchants must make clear to their customers the total cost of the purchase, including any additional charges or fees (e.g. relating to the use of credit cards);
- EU based ecommerce businesses may only charge customers a credit card transaction fee equal to that charged by the credit card company;
- Customers in the EU may claim a refund up to 14 days after receiving an item. The refund amount must include any shipping charges paid by the customer on the initial purchase. If a seller fails to inform a customer about the right to withdraw from the contract, the Directive extends the refund period to a year;
- Although the seller may make customers responsible for return shipping costs, details (or at least an estimate) of the cost of making such a return must be outlined prior to purchase. If the seller fails to do this, the business must pay for the cost of the return;
- If selling digital content, our Clients must be clear about its compatibility requirements (hardware, software or otherwise) and any technical limitations placed upon the product, for example copy protection measures or region locking.