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EU’s New VAT Rules Could Create a Mess for Startups

114 points by scribu 12y ago

k-mcgrady 12y ago
Previous discussion from a few hours ago: https://news.ycombinator.com/item?id=8657074 https://news.ycombinator.com/item?id=8657074
fivedogit 12y ago
This is no joke. When I hired my business's first employee here in Kentucky, the crush of fees, rules and paperwork that came along with her were jaw-dropping. All of a sudden, the government - especially the school board and local agencies - were mailing us with their hands out. Having that first employee triggered things like sales tax forms, quarterly filing requirements, payroll questionnaires, etc. I began to feel that that employee I hired (an office manager) spent 50% of her time trying to make sense of all the new requirements we had because she was hired. That business eventually went south and now I know better. I will never hire anyone again until the money is flowing in the door at a speed I simply can't keep up with.
- CalRobert 12y ago
  How does hiring someone in Kentucky become more difficult due to European Union VAT documentation rules?
  - fivedogit 12y ago
    My point is that increased business documentation rules, no matter the jurisdiction, do have a real impact on the ability of startups to take root and grow.
    - rmc 12y ago
      Conversely, no regulation tends to be literally Dickensian.
      - nmcfarl 12y ago
        I for one am not against regulation, but rather the overhead of large amounts of required documentation. These are burdens that hit small companies the hardest. And the are burdens that are generally not imposed by the regulations passed by our representatives, but are rather imposed by the bureaucracies tasked with enforcing those regulations. Bureaucracies are pretty much about documentation, and most see little harm in more. And this mismatch of understanding slowly stifles small businesses. This is not a problem with regulations, it’s a problem with bureaucracies and empathy.
    - paulhauggis 12y ago
      The end result will be a few large companies and no smaller companies in the marketplace. Barrier to entry will also be difficult. Is less competition and more large companies what we really want?
      - scribu 12y ago
        It's probably not what citizens want, but I tend to believe that governments and the EU wouldn't mind, since I imagine larger companies are easier to identify and control.
- Silhouette 12y ago
  Fortunately for those of us in the UK, the current administration has been making employing anyone such a business-hostile process that some of us have already decided not to take on our first employee as a direct result. It's sad, really. Literally everyone loses, except for our sanity.
higherpurpose 12y ago
This law seems so complex. A small company would have to account for 75 different VATs? I don't necessarily disagree with the idea that the VAT money should go to the country where the buyer is, but the amount of VATs you'd have to account for makes this a very complex rule. Now, if EU had a unique VAT across all countries, things would go much smoother. I also think it would help a lot to turn EU into a more unified single market, much like US is.
- claudius 12y ago
  75 different VAT rates is a bit of an overestimate: In general, there are different VAT rates for different product (books/food at 7%, entertainment at 19% etc.), but one business usually one sells one sort of product, so you only have to find and track 27-or-so different rates (: Of course, ideally, we would have the same rate across the entire EU for a given product category, but even then it might make sense to find some way to move it from the business’ country to the customers’ country, given that it is not intended as a tax to fund business operation but the cost of a given population of customers.
  - bojanz 12y ago
    You do need to know whose rate you applied. Even if the UK and the French rate are the same, you need to know whether you charged the UK rate or the French rate, and they might change and get out of sync on different dates. So you gain nothing with the fact that some percentages match.
- themartorana 12y ago
  "more unified single market..." Well, not so fast. The U.S. has been dealing with sales tax issues on the Internet for years. Not only are there 50 different states, but local municipalities in those states also collect sales tax. And ALL of them are mad they're missing out on sales tax from online sales. There has been huge push-back against proposals to require Internet businesses to collect and pay sales tax across the U.S., but the handwriting is on the wall - sooner or later, U.S. retailers won't be able to play the tax-only-with-physical-presence game. Amazon has laws passed SPECIFICALLY FOR AMAZON[0] requiring they collect sales tax. This feels like it's going to get worse before if gets better. [0] http://en.m.wikipedia.org/wiki/Amazon_tax http://en.m.wikipedia.org/wiki/Amazon_tax
petercooper 12y ago
They will also have to hold that data for 10 years under the Data Protection Act. In the UK, 'accounts and records' that form a core part of the business's function (such as tax or compliance records, or even records for delivering a product to a customer) are exempt and do not require a Data Protection Act registration. There are many other reasons why you may need to be registered, of course, and the ICO have a useful online test to see if you do: http://ico.org.uk/for_organisations/data_protection/registration/self-assessment http://ico.org.uk/for_organisations/data_protection/registra... It should also be mentioned the changes only apply to B2C sales, not B2B.
- thibaut_barrere 12y ago
  One case that isn't clear yet for me is: even if you sell in B2B only, does this new reform apply if the buyer cannot (or does not, for some reason) provide a valid VAT number.
  - petercooper 12y ago
    The British approach is you need evidence the recipient is not receiving your supply "for a wholly private purpose." VAT registration numbers are considered the best evidence, but alternative evidence can be accepted, such as a contract, commercial documents, a purchase order, etc. Whatever evidence you have, you need to keep and be able to defend. HMRC (the UK tax authorities) even say "a digital certificate from a reputable organisation can also be used" but that sounds like a logistical headache. As with most things tax related in the UK, it comes down to whether you think you're within the rules as best you interpret them, and whether you're confident you can honestly defend your stance to a VAT inspector. Other countries may not operate similarly, but the UK tax system tends to operate via debates over intents and outcomes rather than strict adherence to statutes. More information on the above at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&id=HMCE_PROD1_029955#P1106_138630 http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPort...
lucio 12y ago
This will eventually increase the price of digital goods or decrease it's quality. The problem is VAT. This is another advantage for VAT-free USA startups. ¿Maybe this will also give an impulse to cryptocurrencies in EU?
- wbond 12y ago
  According to my understanding, these new VAT rules mean that startups in any country will now have to collect VAT for digital goods and make quarterly filings with one of the MOSS setups - UK, Ireland, etc.
- mike_hearn 12y ago
  It'll probably just hurt cryptocurrencies instead of helping. It seems EU governments think the "solution" is everyone sells via app stores, i.e. third parties that handle all the complexity for you. Perhaps payment processors will handle this for cryptocurrencies, but then one of the goals of systems like Bitcoin is to be free of middlemen, so if you have to put them back just because of the complexity of tax paperwork then it becomes less interesting. Additionally, the accounting is already so complicated, if you're selling for BTC instead of local currencies I suspect at least one countries tax authority would throw a wobbler and want to treat it in a contradictory way to others. Of course, you can also just ignore this and become a tax evader in a foreign country you have no intention of visiting. The question then becomes, will countries start using the European Arrest Warrant system to trigger arrest and extradition of (say) British people for failure to file taxes in Hungary? Quite possibly! The world is getting more globalised, so increasingly and especially for online businesses, this ends up meaning instead of following no countries law, or just your "home" countries, you end up having to follow all of them at once!
adwf 12y ago
The only positive I can see in this is that they apparently do accept "positive affirmation" from the customer with regards to their location. So if you have a dropdown box for their location and maybe a tickbox, it's legally acceptable as proof. Then I'm just left with a slightly annoying filing rather than a very annoying one.
- hackerboos 12y ago
  That happens now though. If I accidentally click UAE instead of UK then I save 20% on a whole host of products.
noelwelsh 12y ago
Let me just cut and paste from HMRC's advice page: If you supply digital services to consumers through an online portal, gateway or marketplace then it’s important to determine whether you’re making the supply to the customer or to the platform operator. Where the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent. https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop https://www.gov.uk/government/publications/vat-supplying-dig... So if you sell your digital products through Amazon or another online marketplace you can just calm the heck down and get on with business as usual.
- pjc50 12y ago
  Indeed; if you're happy to pay a large chunk of your sales to an intermediary you can have them handle the compliance. If you want to disintermediate your sales then you have a lot of hassle.
  - kybernetyk 12y ago
    Well, it's a simple business decision. For me the "large chunk" (which isn't that large at all) was far less than what it would cost me doing it myself at a conservative hourly rate.
- pbhjpbhj 12y ago
  >if you sell your digital products through Amazon or another online marketplace // Can you explain this further? Amazon marketplace put the suppliers name on the page you purchase from, the seller is in control of whether items are sold, the seller is in control of the vital element _the price_. Amazon have T&C but they're not really the terms of sale per se, they're the terms for controlling the marketplace (the seller sets terms for example about non-redistribution or other copyright considerations). The seller appears to be responsible for 2 out of 3 of the main elements of the sale ignoring the point on T&Cs. If Amazon hold the goods, or purchase them up front then I think they'd be liable but if the seller holds them I can't see how the arguments work. Yes Amazon could enable the handling as part of their marketplace but I don't see them as liable for any non-compliance.
wbond 12y ago
As someone who sells digital software licenses, this is quite an baffling situation to experience. Currently, I live in Massachusetts, which does not require collecting sales tax on digital goods. According to these new laws, even though I live in the USA, and don't collect any address information for my customers, I now need to: 1. Collect address and IP address information 2. Register with a MOSS somewhere in the EU 3. Determine what VAT rate applies to the customer 4. Integrate with a (slow, unreliable) API to allow business customers to not pay VAT 5. Add VAT to their purchase (in USD, my merchant currency) 6. Generate VAT invoices that follow the regulations of every EU country 7. Submit tax payments quarterly with customer info 8. Pay VAT taxes in GBP, possibly at a different USD exchange rate So, even though I don't live in the EU, don't host a server there, don't ship things to the EU and do all of my business with US banks and so forth, I will now have more responsibilities for sales taxes in the EU than I do for income tax in the US. I'm almost considering shutting down sales to EU customers.
- pjc50 12y ago
  Someone will correct me if I'm wrong, but this only applies if you're selling from within the EU.
  - shedside 12y ago
    I’m afraid it looks like you’re wrong. https://twitter.com/HMRCgovuk/status/537214398855913472 https://twitter.com/HMRCgovuk/status/537214398855913472 (see the green box at the very bottom of the flowchart)
    - mootothemax 12y ago
      I’m afraid it looks like you’re wrong Yes and no. Yes the EU authorities would love for the entire world to collect VAT from its citizens. No because the EU has absolutely no way to enforce this worldwide. However, the big fun is coming on Thursday, when the EU is due to rule over Google and politely requesting that Google splits off search from the rest of its business. I believe this decision will be indicative of how crazy the EU lawmakers might be prepared to go. For example, if they try and enforce splitting up Google, maybe they'd have the sheer bloody-mindedness to try and enforce blocking sales from EU cards to e.g. non-registered US sellers?
malditojavi 12y ago
Hey fellas, we've being building a solution to this http://quaderno.io/stripe-vat-invoicing/ http://quaderno.io/stripe-vat-invoicing/ So far, VAT management for Stripe Drop me a line in case you need further info or help hello@quaderno.io
psuter 12y ago
My understanding is that a similar law is under consideration in the US? (Marketplace Fairness Act)
bartkappenburg 12y ago
Luckily we've found this: "Super simple (static) web service to grab VAT rates for all EU Member States, in preparation of the new 2015 VAT regulation." See: https://github.com/modmore/euvatrates.com https://github.com/modmore/euvatrates.com We've used this (for http://www.voyando.com http://www.voyando.com) to change our software (ie. replaced a static VAT-variable for EU countries to a dynamic one based on what customers filled in during sign up). It was no more than 4 hours of work :-). The (extra) tax filings are no more than a list with the different countries & VAT amounts. My bookkeeper/accountant will handle the rest ;-).
- AhtiK 12y ago
  The suggested http://euvatrates.com/rates.json http://euvatrates.com/rates.json and pretty much any EU taxation document uses country code "EL" for Greece while ISO standard and most geolocation APIs use "GR". Just make sure your code doesn't crash because of this :) "GB" vs "UK" for United Kingdom is another one to pay attention to.
  - kuschku 12y ago
    It’s about consistence. Name of the Country in it’s own language, abbreviated to 2 letters. Results in EL for Greece, UK for the United Kingdom, etc. GB is an island and has nothing to do with the UK, it’s as if you’d call Japan now Hokkaido, it makes no sense.
    - AhtiK 12y ago
      Yet, if you look at, let's say https://freegeoip.net/json/linweb.codehoop.com https://freegeoip.net/json/linweb.codehoop.com then there's "country_code":"GB","country_name":"United Kingdom" :) Which is correct, "GB" is ISO 3166 Alpha-2 country code for United Kingdom.
    - michaelt 12y ago
      Well, GB is consistent if the rule you're following is "Use the ISO country code" as "GB" is the ISO country code for the UK [1]. [1] http://en.wikipedia.org/wiki/ISO_3166-1 http://en.wikipedia.org/wiki/ISO_3166-1
jasonkester 12y ago
Another early xmas present from the EU to all of us US-based businesses. Thanks, I guess. I've noticed several things like this come down the pipe since I moved to Europe and started paying attention. It seems that they just really like to pass legislation to make it harder to run software businesses over here. Not that I'm complaining, mind you. Anything that removes more potential competition from my businesses can only be a good thing.
- kybernetyk 12y ago
  >It seems that they just really like to pass legislation to make it harder to run software businesses over here. Please elaborate. I have quite a few friends who run "traditional brick and mortar" businesses and compared to the shit they have to put up with my "virtual" business is like a walk in the park.
- Tombone5 12y ago
  Well, its only a small token of gratitude for all the things the NSA gave the EU.
jasiek 12y ago
Once the infrastructure for this is in place, it wouldn't suprise me if they would apply it to other things as well.
MistahKoala 12y ago
I'm unfamiliar with the nuances of sales tax rules in relation to the Crown dependencies (IoM; Channel Islands), but would one way around this be for sole traders and micro enterprises (or even SMEs, if they wish) to incorporate their trading entity in one of the Crown dependencies, allowing them to disregard this messy requirement?
- mootothemax 12y ago
  Would one way around this be for sole traders and micro enterprises (or even SMEs, if they wish) to incorporate their trading entity in one of the Crown dependencies In theory, the EU requires you to collect VAT from EU citizens regardless of where you yourself are based. The new rules state that you should charge VAT at the customer's local rate, so being based in a tax haven wouldn't - again, in theory - do you any good. How on earth they ever intend to enforce any of this against the rest of the world is anyone's guess.
  - tormeh 12y ago
    Blocking payment from EU accounts to accounts of firms failing to comply, I guess. That's the standard way to act against firms from shady countries. There are generally cooperation agreements if you're from a developed economy.
  - MistahKoala 12y ago
    > In theory, the EU requires you to collect VAT from EU citizens regardless of where you yourself are based. Well I'm certainly interested in how they see themselves exercising their power extra-territorially. I'm inclined towards letting them swivel on my middle finger. HMRC themselves say that VAT isn't chargeable on sales outside of the EU, so doesn't that run contrary to what you're saying about the EU requirement for global VAT collection?
- pjc50 12y ago
  This was the old loophole used by Amazon to sell CDs from Jersey without paying VAT. It got closed somehow. Incorporating in Delaware, or having a subsidiary/reseller in the US front the actual sales, seems like a better option.
flexie 12y ago
Best solution would be to have a common EU VAT-rate applying to all goods and services. It's going to be terrible situation for tech start ups but it's been bad for everyone for a while who sells across borders in EU. You have to find out what strange box defined by eurocrats that your business fits into (if any). It's not that easy. I'm a lawyer selling most of my services across borders. Some of my revenue is purely digital (downloads of documents and may be hit by the new rules), some would be characterized as consultancy services. If my client is in another member state and is VAT registered (like most, but not all companies) I don't have to charge VAT. But instead I am left to explain to my client that the mess is now theirs due to the weird chargeback rules (that they only know if they are used to selling B2B or buying from suppliers in other member states). If I sell services to private persons or companies that are not VAT registered, I have to charge the VAT of the country my law firm is in. If I had given legal advice related to real estate I would be subject to yet other rules. When I sell to companies outside of the EU it's a different set of rules again. Most bookkeepers and accountants are very insecure about these rules. If professional accountants are not comfortable advising on the rules, the system is too complicated.
- MistahKoala 12y ago
  > Best solution would be to have a common EU VAT-rate applying to all goods and services. That would appear to fulfil a long-term aspiration of the European project.
  - flexie 12y ago
    Indeed. And if they then put the VAT rate at 0 it would hurt businesses even less ;-)
    - raverbashing 12y ago
      Consumers pay VAT, not business. Similar to the sales tax in the US/Canada
      - deleted 12y ago
mootothemax 12y ago
Is the long-term outcome looking like, one day, twenty years from now, we'll be collecting every last sales tax based on where the customer is right this very second? It seems a bit unfair for the EU to demand e.g. US-based sites to collect VAT, and there not being anything going in the opposite direction.
- lmm 12y ago
  > Is the long-term outcome looking like, one day, twenty years from now, we'll be collecting every last sales tax based on where the customer is right this very second? Maybe. If our system is smooth enough to handle it then why not? Alternately one can hope we will finally abolish the nation-state and just collect tax in a unified international way. > It seems a bit unfair for the EU to demand e.g. US-based sites to collect VAT, and there not being anything going in the opposite direction. Plenty of US states have similar laws that you're supposed to collect sales tax for customers in that state even if you're a website selling from elsewhere.
michah 12y ago
Actually this is not really new. Since 2003 Businesses outside the EU that sell to private (not business) customers in the EU need to pay VAT to an EU member country. This is called VAT on e-Services. Most App Stores (except Google Play) took care of this already but if you did direct sales (e.g. via Paypal, direct payments etc) you need to calculate the tax every quarter and pay it to a member state (which will then distribute it to the other states so that you need to do only one payment). You can read more on the UK government page: https://secure.hmce.gov.uk/ecom/voes/welcome.do https://secure.hmce.gov.uk/ecom/voes/welcome.do The main new thing now is that app stores who had a subsidiary in Luxembourg can no longer funnel it through the lowest VAT country but need to split it up according to the customer country.
- scribu 12y ago
  Isn't the lack of VAT exemption for small businesses also new?
  - nulluk 12y ago
    Yes and this is what is the most unsettling part, the TLDR for small businesses is if you don't sell through a marketplace your sod out of luck and now regarding the VAT threshold and need to burden the cost of becoming VAT registered
bliker 12y ago
So this means I can just change my IP (And possibly use some random physical address) to get lower prices when in EU?
- nichol4s 12y ago
  And or the location attached to your creditcard.
  - icebraining 12y ago
    Assuming you pay by credit card and not, say, Paypal.
maljx 12y ago
These new rules, while more complicated, are actually more fair (for companies). You now don't compete depending on where your company is based in the EU. Before these rules you applied the VAT based on the country where the company was based.
rachelandrew 12y ago
This is how we are thinking about implementing this for Perch http://rachelandrew.co.uk/archives/2014/11/20/implementing-the-new-eu-vat-rules/ http://rachelandrew.co.uk/archives/2014/11/20/implementing-t... I am also collecting links and resources on GitHub http://rachelandrew.github.io/eu-vat/ http://rachelandrew.github.io/eu-vat/
gabemart 12y ago
I can't stress enough how dispiriting this is. If you live in the UK, this law increases the minimum capital outlay for selling any digital good online by a factor of a hundred. The idea that someone selling a couple of copies of an e-book a year on gumroad should be required to register for VAT is utterly insane. It's going to create a layer of rent-seeking middlemen and generally make the market less efficient.
gst 12y ago
Does this also apply to US startups selling into the EU? Does the EU have any legal means to enforce VAT payment if a US startup doesn't have any presence within the EU?
Tombone5 12y ago
Is this an opinion piece? I thought techcrunch was a news site, but this is so opinionated without any clear indication of being an editorial I'm not sure anymore. Maybe its one of those sites where the editorial stance is so brazen in all texts that its best to consider it an opinion magazine.
adekmm 12y ago
I'm running SaaS startup in UE (in Poland). Because of these VAT changes, and also some consumer rights changes, I've decided to restrict my service to use only by companies. I's not worth to me to update system to verify consumer address, create invoices with more than 10 possible vat rates and do additional accounting work. If I would have a lot of B2C consumers, I'd just incorporate in US or other non-EU country for this. I could offer them cheaper service (no VAT) and I would have much less work to do.
adwf 12y ago
Here's the gist of it for UK startups as I understand it: 1) If you're already VAT registered, this isn't really adding much work. Just track IP address and credit card address for the sale (you probably are anyway). Your accountant can take care of the rest. 2) App store sales are unaffected as long as they are collecting the VAT for you. As far as I know, both Google and Apple do this. 3) If you are not VAT registered and are under the threshold of £81k/yr. You have two choices: Register and go through all the compliance (this is a pain). Or don't register, then block all non-UK EU countries from buying. You can still accept UK and other countries such as the USA, but the moment you make a cross-border transaction into the EU, you will have to register for VAT, start charging VAT and filing quarterly reports. I assume that other countries with VAT thresholds will be similar, don't sell to EU countries other than your own and you should be fine. Although obviously check with your accountant first!
jbb555 12y ago
I was taking this seriously until "The new rules are especially onerous for women entrepreneurs". No, it's just the same for everyone.
towelguy 12y ago
Would this mean no taxes for buyers from countries outside the EU?
kdeldycke 12y ago
Just compiled a list of VAT rates and territory exceptions. All is available at: https://github.com/kdeldycke/vat-rates https://github.com/kdeldycke/vat-rates

114 points by scribu 12y ago

Previous discussion from a few hours ago: https://news.ycombinator.com/item?id=8657074 https://news.ycombinator.com/item?id=8657074

fivedogit 12y ago

This is no joke. When I hired my business's first employee here in Kentucky, the crush of fees, rules and paperwork that came along with her were jaw-dropping. All of a sudden, the government - especially the school board and local agencies - were mailing us with their hands out. Having that first employee triggered things like sales tax forms, quarterly filing requirements, payroll questionnaires, etc. I began to feel that that employee I hired (an office manager) spent 50% of her time trying to make sense of all the new requirements we had because she was hired. That business eventually went south and now I know better. I will never hire anyone again until the money is flowing in the door at a speed I simply can't keep up with.

CalRobert 12y ago
How does hiring someone in Kentucky become more difficult due to European Union VAT documentation rules?
- fivedogit 12y ago
  My point is that increased business documentation rules, no matter the jurisdiction, do have a real impact on the ability of startups to take root and grow.
  - rmc 12y ago
    Conversely, no regulation tends to be literally Dickensian.
    - nmcfarl 12y ago
      I for one am not against regulation, but rather the overhead of large amounts of required documentation. These are burdens that hit small companies the hardest. And the are burdens that are generally not imposed by the regulations passed by our representatives, but are rather imposed by the bureaucracies tasked with enforcing those regulations. Bureaucracies are pretty much about documentation, and most see little harm in more. And this mismatch of understanding slowly stifles small businesses. This is not a problem with regulations, it’s a problem with bureaucracies and empathy.
  - paulhauggis 12y ago
    The end result will be a few large companies and no smaller companies in the marketplace. Barrier to entry will also be difficult. Is less competition and more large companies what we really want?
    - scribu 12y ago
      It's probably not what citizens want, but I tend to believe that governments and the EU wouldn't mind, since I imagine larger companies are easier to identify and control.
Silhouette 12y ago
Fortunately for those of us in the UK, the current administration has been making employing anyone such a business-hostile process that some of us have already decided not to take on our first employee as a direct result. It's sad, really. Literally everyone loses, except for our sanity.

higherpurpose 12y ago

This law seems so complex. A small company would have to account for 75 different VATs? I don't necessarily disagree with the idea that the VAT money should go to the country where the buyer is, but the amount of VATs you'd have to account for makes this a very complex rule. Now, if EU had a unique VAT across all countries, things would go much smoother. I also think it would help a lot to turn EU into a more unified single market, much like US is.

claudius 12y ago
75 different VAT rates is a bit of an overestimate: In general, there are different VAT rates for different product (books/food at 7%, entertainment at 19% etc.), but one business usually one sells one sort of product, so you only have to find and track 27-or-so different rates (: Of course, ideally, we would have the same rate across the entire EU for a given product category, but even then it might make sense to find some way to move it from the business’ country to the customers’ country, given that it is not intended as a tax to fund business operation but the cost of a given population of customers.
- bojanz 12y ago
  You do need to know whose rate you applied. Even if the UK and the French rate are the same, you need to know whether you charged the UK rate or the French rate, and they might change and get out of sync on different dates. So you gain nothing with the fact that some percentages match.
themartorana 12y ago
"more unified single market..." Well, not so fast. The U.S. has been dealing with sales tax issues on the Internet for years. Not only are there 50 different states, but local municipalities in those states also collect sales tax. And ALL of them are mad they're missing out on sales tax from online sales. There has been huge push-back against proposals to require Internet businesses to collect and pay sales tax across the U.S., but the handwriting is on the wall - sooner or later, U.S. retailers won't be able to play the tax-only-with-physical-presence game. Amazon has laws passed SPECIFICALLY FOR AMAZON[0] requiring they collect sales tax. This feels like it's going to get worse before if gets better. [0] http://en.m.wikipedia.org/wiki/Amazon_tax http://en.m.wikipedia.org/wiki/Amazon_tax

petercooper 12y ago

They will also have to hold that data for 10 years under the Data Protection Act. In the UK, 'accounts and records' that form a core part of the business's function (such as tax or compliance records, or even records for delivering a product to a customer) are exempt and do not require a Data Protection Act registration. There are many other reasons why you may need to be registered, of course, and the ICO have a useful online test to see if you do: http://ico.org.uk/for_organisations/data_protection/registration/self-assessment http://ico.org.uk/for_organisations/data_protection/registra... It should also be mentioned the changes only apply to B2C sales, not B2B.

thibaut_barrere 12y ago
One case that isn't clear yet for me is: even if you sell in B2B only, does this new reform apply if the buyer cannot (or does not, for some reason) provide a valid VAT number.
- petercooper 12y ago
  The British approach is you need evidence the recipient is not receiving your supply "for a wholly private purpose." VAT registration numbers are considered the best evidence, but alternative evidence can be accepted, such as a contract, commercial documents, a purchase order, etc. Whatever evidence you have, you need to keep and be able to defend. HMRC (the UK tax authorities) even say "a digital certificate from a reputable organisation can also be used" but that sounds like a logistical headache. As with most things tax related in the UK, it comes down to whether you think you're within the rules as best you interpret them, and whether you're confident you can honestly defend your stance to a VAT inspector. Other countries may not operate similarly, but the UK tax system tends to operate via debates over intents and outcomes rather than strict adherence to statutes. More information on the above at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&id=HMCE_PROD1_029955#P1106_138630 http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPort...

lucio 12y ago

This will eventually increase the price of digital goods or decrease it's quality. The problem is VAT. This is another advantage for VAT-free USA startups. ¿Maybe this will also give an impulse to cryptocurrencies in EU?

wbond 12y ago
According to my understanding, these new VAT rules mean that startups in any country will now have to collect VAT for digital goods and make quarterly filings with one of the MOSS setups - UK, Ireland, etc.
mike_hearn 12y ago
It'll probably just hurt cryptocurrencies instead of helping. It seems EU governments think the "solution" is everyone sells via app stores, i.e. third parties that handle all the complexity for you. Perhaps payment processors will handle this for cryptocurrencies, but then one of the goals of systems like Bitcoin is to be free of middlemen, so if you have to put them back just because of the complexity of tax paperwork then it becomes less interesting. Additionally, the accounting is already so complicated, if you're selling for BTC instead of local currencies I suspect at least one countries tax authority would throw a wobbler and want to treat it in a contradictory way to others. Of course, you can also just ignore this and become a tax evader in a foreign country you have no intention of visiting. The question then becomes, will countries start using the European Arrest Warrant system to trigger arrest and extradition of (say) British people for failure to file taxes in Hungary? Quite possibly! The world is getting more globalised, so increasingly and especially for online businesses, this ends up meaning instead of following no countries law, or just your "home" countries, you end up having to follow all of them at once!

adwf 12y ago

The only positive I can see in this is that they apparently do accept "positive affirmation" from the customer with regards to their location. So if you have a dropdown box for their location and maybe a tickbox, it's legally acceptable as proof. Then I'm just left with a slightly annoying filing rather than a very annoying one.

hackerboos 12y ago
That happens now though. If I accidentally click UAE instead of UK then I save 20% on a whole host of products.

noelwelsh 12y ago

Let me just cut and paste from HMRC's advice page: If you supply digital services to consumers through an online portal, gateway or marketplace then it’s important to determine whether you’re making the supply to the customer or to the platform operator. Where the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent. https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop https://www.gov.uk/government/publications/vat-supplying-dig... So if you sell your digital products through Amazon or another online marketplace you can just calm the heck down and get on with business as usual.

pjc50 12y ago
Indeed; if you're happy to pay a large chunk of your sales to an intermediary you can have them handle the compliance. If you want to disintermediate your sales then you have a lot of hassle.
- kybernetyk 12y ago
  Well, it's a simple business decision. For me the "large chunk" (which isn't that large at all) was far less than what it would cost me doing it myself at a conservative hourly rate.
pbhjpbhj 12y ago
>if you sell your digital products through Amazon or another online marketplace // Can you explain this further? Amazon marketplace put the suppliers name on the page you purchase from, the seller is in control of whether items are sold, the seller is in control of the vital element _the price_. Amazon have T&C but they're not really the terms of sale per se, they're the terms for controlling the marketplace (the seller sets terms for example about non-redistribution or other copyright considerations). The seller appears to be responsible for 2 out of 3 of the main elements of the sale ignoring the point on T&Cs. If Amazon hold the goods, or purchase them up front then I think they'd be liable but if the seller holds them I can't see how the arguments work. Yes Amazon could enable the handling as part of their marketplace but I don't see them as liable for any non-compliance.

wbond 12y ago

As someone who sells digital software licenses, this is quite an baffling situation to experience. Currently, I live in Massachusetts, which does not require collecting sales tax on digital goods. According to these new laws, even though I live in the USA, and don't collect any address information for my customers, I now need to: 1. Collect address and IP address information 2. Register with a MOSS somewhere in the EU 3. Determine what VAT rate applies to the customer 4. Integrate with a (slow, unreliable) API to allow business customers to not pay VAT 5. Add VAT to their purchase (in USD, my merchant currency) 6. Generate VAT invoices that follow the regulations of every EU country 7. Submit tax payments quarterly with customer info 8. Pay VAT taxes in GBP, possibly at a different USD exchange rate So, even though I don't live in the EU, don't host a server there, don't ship things to the EU and do all of my business with US banks and so forth, I will now have more responsibilities for sales taxes in the EU than I do for income tax in the US. I'm almost considering shutting down sales to EU customers.

pjc50 12y ago
Someone will correct me if I'm wrong, but this only applies if you're selling from within the EU.
- shedside 12y ago
  I’m afraid it looks like you’re wrong. https://twitter.com/HMRCgovuk/status/537214398855913472 https://twitter.com/HMRCgovuk/status/537214398855913472 (see the green box at the very bottom of the flowchart)
  - mootothemax 12y ago
    I’m afraid it looks like you’re wrong Yes and no. Yes the EU authorities would love for the entire world to collect VAT from its citizens. No because the EU has absolutely no way to enforce this worldwide. However, the big fun is coming on Thursday, when the EU is due to rule over Google and politely requesting that Google splits off search from the rest of its business. I believe this decision will be indicative of how crazy the EU lawmakers might be prepared to go. For example, if they try and enforce splitting up Google, maybe they'd have the sheer bloody-mindedness to try and enforce blocking sales from EU cards to e.g. non-registered US sellers?

malditojavi 12y ago

Hey fellas, we've being building a solution to this http://quaderno.io/stripe-vat-invoicing/ http://quaderno.io/stripe-vat-invoicing/ So far, VAT management for Stripe Drop me a line in case you need further info or help hello@quaderno.io

psuter 12y ago

My understanding is that a similar law is under consideration in the US? (Marketplace Fairness Act)

bartkappenburg 12y ago

Luckily we've found this: "Super simple (static) web service to grab VAT rates for all EU Member States, in preparation of the new 2015 VAT regulation." See: https://github.com/modmore/euvatrates.com https://github.com/modmore/euvatrates.com We've used this (for http://www.voyando.com http://www.voyando.com) to change our software (ie. replaced a static VAT-variable for EU countries to a dynamic one based on what customers filled in during sign up). It was no more than 4 hours of work :-). The (extra) tax filings are no more than a list with the different countries & VAT amounts. My bookkeeper/accountant will handle the rest ;-).

AhtiK 12y ago
The suggested http://euvatrates.com/rates.json http://euvatrates.com/rates.json and pretty much any EU taxation document uses country code "EL" for Greece while ISO standard and most geolocation APIs use "GR". Just make sure your code doesn't crash because of this :) "GB" vs "UK" for United Kingdom is another one to pay attention to.
- kuschku 12y ago
  It’s about consistence. Name of the Country in it’s own language, abbreviated to 2 letters. Results in EL for Greece, UK for the United Kingdom, etc. GB is an island and has nothing to do with the UK, it’s as if you’d call Japan now Hokkaido, it makes no sense.
  - AhtiK 12y ago
    Yet, if you look at, let's say https://freegeoip.net/json/linweb.codehoop.com https://freegeoip.net/json/linweb.codehoop.com then there's "country_code":"GB","country_name":"United Kingdom" :) Which is correct, "GB" is ISO 3166 Alpha-2 country code for United Kingdom.
  - michaelt 12y ago
    Well, GB is consistent if the rule you're following is "Use the ISO country code" as "GB" is the ISO country code for the UK [1]. [1] http://en.wikipedia.org/wiki/ISO_3166-1 http://en.wikipedia.org/wiki/ISO_3166-1

jasonkester 12y ago

Another early xmas present from the EU to all of us US-based businesses. Thanks, I guess. I've noticed several things like this come down the pipe since I moved to Europe and started paying attention. It seems that they just really like to pass legislation to make it harder to run software businesses over here. Not that I'm complaining, mind you. Anything that removes more potential competition from my businesses can only be a good thing.

kybernetyk 12y ago
>It seems that they just really like to pass legislation to make it harder to run software businesses over here. Please elaborate. I have quite a few friends who run "traditional brick and mortar" businesses and compared to the shit they have to put up with my "virtual" business is like a walk in the park.
Tombone5 12y ago
Well, its only a small token of gratitude for all the things the NSA gave the EU.

jasiek 12y ago

Once the infrastructure for this is in place, it wouldn't suprise me if they would apply it to other things as well.

MistahKoala 12y ago

I'm unfamiliar with the nuances of sales tax rules in relation to the Crown dependencies (IoM; Channel Islands), but would one way around this be for sole traders and micro enterprises (or even SMEs, if they wish) to incorporate their trading entity in one of the Crown dependencies, allowing them to disregard this messy requirement?

mootothemax 12y ago
Would one way around this be for sole traders and micro enterprises (or even SMEs, if they wish) to incorporate their trading entity in one of the Crown dependencies In theory, the EU requires you to collect VAT from EU citizens regardless of where you yourself are based. The new rules state that you should charge VAT at the customer's local rate, so being based in a tax haven wouldn't - again, in theory - do you any good. How on earth they ever intend to enforce any of this against the rest of the world is anyone's guess.
- tormeh 12y ago
  Blocking payment from EU accounts to accounts of firms failing to comply, I guess. That's the standard way to act against firms from shady countries. There are generally cooperation agreements if you're from a developed economy.
- MistahKoala 12y ago
  > In theory, the EU requires you to collect VAT from EU citizens regardless of where you yourself are based. Well I'm certainly interested in how they see themselves exercising their power extra-territorially. I'm inclined towards letting them swivel on my middle finger. HMRC themselves say that VAT isn't chargeable on sales outside of the EU, so doesn't that run contrary to what you're saying about the EU requirement for global VAT collection?
pjc50 12y ago
This was the old loophole used by Amazon to sell CDs from Jersey without paying VAT. It got closed somehow. Incorporating in Delaware, or having a subsidiary/reseller in the US front the actual sales, seems like a better option.

flexie 12y ago

Best solution would be to have a common EU VAT-rate applying to all goods and services. It's going to be terrible situation for tech start ups but it's been bad for everyone for a while who sells across borders in EU. You have to find out what strange box defined by eurocrats that your business fits into (if any). It's not that easy. I'm a lawyer selling most of my services across borders. Some of my revenue is purely digital (downloads of documents and may be hit by the new rules), some would be characterized as consultancy services. If my client is in another member state and is VAT registered (like most, but not all companies) I don't have to charge VAT. But instead I am left to explain to my client that the mess is now theirs due to the weird chargeback rules (that they only know if they are used to selling B2B or buying from suppliers in other member states). If I sell services to private persons or companies that are not VAT registered, I have to charge the VAT of the country my law firm is in. If I had given legal advice related to real estate I would be subject to yet other rules. When I sell to companies outside of the EU it's a different set of rules again. Most bookkeepers and accountants are very insecure about these rules. If professional accountants are not comfortable advising on the rules, the system is too complicated.

MistahKoala 12y ago
> Best solution would be to have a common EU VAT-rate applying to all goods and services. That would appear to fulfil a long-term aspiration of the European project.
- flexie 12y ago
  Indeed. And if they then put the VAT rate at 0 it would hurt businesses even less ;-)
  - raverbashing 12y ago
    Consumers pay VAT, not business. Similar to the sales tax in the US/Canada
    - deleted 12y ago

mootothemax 12y ago

Is the long-term outcome looking like, one day, twenty years from now, we'll be collecting every last sales tax based on where the customer is right this very second? It seems a bit unfair for the EU to demand e.g. US-based sites to collect VAT, and there not being anything going in the opposite direction.

lmm 12y ago
> Is the long-term outcome looking like, one day, twenty years from now, we'll be collecting every last sales tax based on where the customer is right this very second? Maybe. If our system is smooth enough to handle it then why not? Alternately one can hope we will finally abolish the nation-state and just collect tax in a unified international way. > It seems a bit unfair for the EU to demand e.g. US-based sites to collect VAT, and there not being anything going in the opposite direction. Plenty of US states have similar laws that you're supposed to collect sales tax for customers in that state even if you're a website selling from elsewhere.

michah 12y ago

Actually this is not really new. Since 2003 Businesses outside the EU that sell to private (not business) customers in the EU need to pay VAT to an EU member country. This is called VAT on e-Services. Most App Stores (except Google Play) took care of this already but if you did direct sales (e.g. via Paypal, direct payments etc) you need to calculate the tax every quarter and pay it to a member state (which will then distribute it to the other states so that you need to do only one payment). You can read more on the UK government page: https://secure.hmce.gov.uk/ecom/voes/welcome.do https://secure.hmce.gov.uk/ecom/voes/welcome.do The main new thing now is that app stores who had a subsidiary in Luxembourg can no longer funnel it through the lowest VAT country but need to split it up according to the customer country.

scribu 12y ago
Isn't the lack of VAT exemption for small businesses also new?
- nulluk 12y ago
  Yes and this is what is the most unsettling part, the TLDR for small businesses is if you don't sell through a marketplace your sod out of luck and now regarding the VAT threshold and need to burden the cost of becoming VAT registered

bliker 12y ago

So this means I can just change my IP (And possibly use some random physical address) to get lower prices when in EU?

nichol4s 12y ago
And or the location attached to your creditcard.
- icebraining 12y ago
  Assuming you pay by credit card and not, say, Paypal.

maljx 12y ago

These new rules, while more complicated, are actually more fair (for companies). You now don't compete depending on where your company is based in the EU. Before these rules you applied the VAT based on the country where the company was based.

rachelandrew 12y ago

This is how we are thinking about implementing this for Perch http://rachelandrew.co.uk/archives/2014/11/20/implementing-the-new-eu-vat-rules/ http://rachelandrew.co.uk/archives/2014/11/20/implementing-t... I am also collecting links and resources on GitHub http://rachelandrew.github.io/eu-vat/ http://rachelandrew.github.io/eu-vat/

gabemart 12y ago

I can't stress enough how dispiriting this is. If you live in the UK, this law increases the minimum capital outlay for selling any digital good online by a factor of a hundred. The idea that someone selling a couple of copies of an e-book a year on gumroad should be required to register for VAT is utterly insane. It's going to create a layer of rent-seeking middlemen and generally make the market less efficient.

gst 12y ago

Does this also apply to US startups selling into the EU? Does the EU have any legal means to enforce VAT payment if a US startup doesn't have any presence within the EU?

Tombone5 12y ago

Is this an opinion piece? I thought techcrunch was a news site, but this is so opinionated without any clear indication of being an editorial I'm not sure anymore. Maybe its one of those sites where the editorial stance is so brazen in all texts that its best to consider it an opinion magazine.

adekmm 12y ago

I'm running SaaS startup in UE (in Poland). Because of these VAT changes, and also some consumer rights changes, I've decided to restrict my service to use only by companies. I's not worth to me to update system to verify consumer address, create invoices with more than 10 possible vat rates and do additional accounting work. If I would have a lot of B2C consumers, I'd just incorporate in US or other non-EU country for this. I could offer them cheaper service (no VAT) and I would have much less work to do.

adwf 12y ago

Here's the gist of it for UK startups as I understand it: 1) If you're already VAT registered, this isn't really adding much work. Just track IP address and credit card address for the sale (you probably are anyway). Your accountant can take care of the rest. 2) App store sales are unaffected as long as they are collecting the VAT for you. As far as I know, both Google and Apple do this. 3) If you are not VAT registered and are under the threshold of £81k/yr. You have two choices: Register and go through all the compliance (this is a pain). Or don't register, then block all non-UK EU countries from buying. You can still accept UK and other countries such as the USA, but the moment you make a cross-border transaction into the EU, you will have to register for VAT, start charging VAT and filing quarterly reports. I assume that other countries with VAT thresholds will be similar, don't sell to EU countries other than your own and you should be fine. Although obviously check with your accountant first!

jbb555 12y ago

I was taking this seriously until "The new rules are especially onerous for women entrepreneurs". No, it's just the same for everyone.

towelguy 12y ago

Would this mean no taxes for buyers from countries outside the EU?

kdeldycke 12y ago

Just compiled a list of VAT rates and territory exceptions. All is available at: https://github.com/kdeldycke/vat-rates https://github.com/kdeldycke/vat-rates