118 ms·

Making Sense of the New VAT Rules

62 points by AliCollins 12y ago

waps 12y ago
What is to prevent some guy from making a US business that does nothing other than sell EU businesses' products to customers on their behalf ? Because selling products to the US is VAT-exempt, and US companies selling to EU customers is also VAT-exempt. I'm betting the first company doing this will be amazon.
- Kudos 12y ago
  That has nothing to do with this change in VAT rules. If that loophole actually existed Amazon would already be using it. US businesses are actually required to charge VAT, but smaller operations get away without doing that. At Amazon's volume it makes sense to set up tax entity in the EU to avoid import duty. For example for amazon.com selling to a consumer in Ireland sees 17% import duty + compunded 23% VAT on the item cost and the shipping cost.
  - deleted 12y ago
    [deleted]
    - maxerickson 12y ago
      They mean US businesses selling and shipping to countries with VAT.
    - cmdkeen 12y ago
      That's not what he means. US businesses selling to European consumer customers should be charging VAT and sending it to the relevant government. For small ones it doesn't matter because they're in the US and so beyond the reach of the EU states. Large ones however very much are and so have to comply with the law. Amazon couldn't decide to just run all its business through the USA to avoid charging VAT to consumers, they would be sued into oblivion.
    - danmaz74 12y ago
      That's only for sales made to EU customers.
    - deleted 12y ago
      [deleted]
- masklinn 12y ago
  > What is to prevent some guy from making a US business that does nothing other than sell EU businesses' products to customers on their behalf ? Customers having to pay import duties and VAT, then being involved in an international tax evasion scheme.
- danmaz74 12y ago
  > US companies selling to EU customers is also VAT-exempt You got this wrong. US companies need to collect and pay VAT if they want to sell to the EU - edit: for digital goods.
  - lukeredpath 12y ago
    On digital goods and services. I'm pretty sure the liability to pay VAT on physical goods, along with any import duty, is the customers when the item is imported. For the record, here's the HMRC (UK revenue service) explanation of the special VoES scheme that's been around for ages: http://webarchive.nationalarchives.gov.uk/20120128212010/http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageOnlineServices_ShowContent&id=HMCE_CL_000922&propertyType=document http://webarchive.nationalarchives.gov.uk/20120128212010/htt...
    - danmaz74 12y ago
      Yes I forgot to mention that - for digital goods :)
- charlesdm 12y ago
  US companies need to comply with these rules, but many of them don't. I think the main issue here is enforcement. I don't think it's reasonable to expect the IRS to enforce foreign legislation on US companies. And that's exactly the reason why US companies often don't comply. Edit: I'm talking about digital downloads and digital services. If you're shipping goods then there might also be import duty liabilities, not sure.
  - TheOtherHobbes 12y ago
    Enforcement makes the whole process utterly impractical. The EU's VAT and tax authorities are barely keeping up with work as it is. And the idea that companies with five or six figure turnovers are worth chasing for a few percentage points of extra VAT is nonsensical when there's so much other VAT and tax fraud in the EU. I'm not convinced taxation is the real point. To me this seems more like a ham-fisted attempt to force businesses to keep records for surveillance purposes. I wonder if at some point in the next decade we'll see companies having to make their online sales records visible to the tax authorities for "automated verification", so they can find out who's been buying machetes and bomb chemicals.
    - charlesdm 12y ago
      Yes, absolutely. There are cases where hundreds of millions have gone missing in carousel frauds. I'd assume those take precedence over small VAT cases. Not sure on the second part, but I do know some tax authorities are already using various data mining techniques to flag certain behaviours.
- kryptiskt 12y ago
  Customs in the customer's country may intercept the package and charge VAT and duty for it. That has happened to me from time to time with Amazon as far back as 1998.
  - DanBC 12y ago
    And the carrier company will charge a fee for "handling the paperwork" or whatever the hell it is they do.
    - dageshi 12y ago
      My experience has been that this happens pretty infrequently if your packages are relatively small. I think it's only happened to me once in fact and that was a long time ago.
- lukeredpath 12y ago
  US/non-EU companies selling digital products and services to the EU is most certainly NOT exempt, and it wasn't exempt before these recent changes - it's been a requirement that US/non-EU businesses selling digital services register to charge VAT to EU customers at their local VAT rate since 2003! Rather than registering in each EU country, they could register in one country and use the VoES system to submit their returns. It was because of this ruling that big companies like Amazon found a workaround by setting up subsidiaries in countries with low VAT rates like Luxembourg and sold their goods from there. This meant they could charge Lux VAT instead of the customer country's VAT rate. This obviously gave them an unfair advantage not only over local businesses but also non-EU businesses that used the VoES system. In effect these new rules change little for non EU businesses. The VoES system is being retired in favour of the new MOSS system which is effectively the same sort of thing, only now, ALL businesses including those in the EU, have to charge local VAT when selling digital services to the EU. For e big companies like Amazon, this closes a loophole. For those who were correctly charging VAT under the VoES system, nothing much changes. For those non-EU companies who were chose not to comply with the 2002 rules, well I'd imagine they will continue to not bother. And those who were ignorant of them (many I'm sure) might now be a bit more aware. But of course the businesses it affects the most are small EU businesses who now have to charge different rates of VAT or use MOSS when they didn't before.
JonM 12y ago
A couple of useful resources if you need to calculate VAT rates across Europe and Stripe's fees in each country: http://jsonvat.com/ http://jsonvat.com/, https://stripefees.com/ https://stripefees.com/
- JonM 12y ago
  It's also important to note that these new rules cover the sale of digital goods to CONSUMERS only, if you are (for example) a registered business in the UK and selling to a registered business in Germany, German VAT is not applied, and you do not have to pass it on (via VATMOSS) to the German government.
  - lukeredpath 12y ago
    Yes, B2B sales between EU countries are handled using the reverse charge system, when the supply is where the customer belongs - subject to certain use and enjoyment provisions (e.g. If a UK business sells software to a German business for use in the German business's UK office it would be subject to UK VAT instead).
- wbond 12y ago
  If you want help determining what rate to charge a customer, I built both JS and Python libraries that include functionality to: - Determine rate based on - phone number - billing address - self-declared location - IP address - Validate VAT IDs - Fetch exchange rate info from the European Central Bank You can find the code at https://github.com/wbond/vat-moss.js https://github.com/wbond/vat-moss.js and https://github.com/wbond/vat_moss-python https://github.com/wbond/vat_moss-python. I also wrote up a bit about dealing with registering for VAT MOSS, generating invoices, etc.
chestnut-tree 12y ago
Here is a blog post by Andrus Ansip, the European Commissioner for the Digital Single Market, on the new EU VAT rules. It's not a particularly supportive or re-assuring post given the criticisms of the new rules https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_en https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_e... Apparently these rules were agreed in 2008. Countries have obviously failed to communicate the impending changes. I liked this comment below the post: "And so much for it being in place since 2008. This is akin to the Vogons in Douglas Adam's Hitchhikers Guide to the Galaxy claiming that the plans for Earths destruction have been available for viewing on Alpha Centauri for 50 years."
- toyg 12y ago
  Adams liked that joke so much, he used it twice: “But the plans were on display…” “On display? I eventually had to go down to the cellar to find them.” “That’s the display department.” “With a flashlight.” “Ah, well, the lights had probably gone.” “So had the stairs.” “But look, you found the notice, didn’t you?” “Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard.”
  - arcadius 12y ago
    Which, in my mind anyway, is really the joke itself.
- Silhouette 12y ago
  It's worth noting that the post you linked to was from 16 December 2014, which is ancient history in terms of this issue. Vince Cable (the UK's Business Secretary) wrote a similarly ignorant and dismissive response[1] to an on-line petition on 8 December. However, there has been a lot of further discussion, at least in the UK, since that time. It seems that the government and tax authorities here may finally be realising how much they screwed this one up. Unfortunately, since most of the small businesses elsewhere in the EU don't even seem to know they're now breaking the rules and their respective tax authorities seem far less bothered about those rules, there isn't the same level of protest (at least not yet) so Eurocrats like Ansip may or may not be under any real pressure to fix the problem so far. And it seems that any serious fix does require further action at EU level, because national governments and tax authorities don't have the flexibility to make unilateral decisions on some of the key points (unless they flagrantly ignore the rules themselves, as several do seem to be doing already). [1] https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products/responses/25596 https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemp...
brador 12y ago
The new EU rules are only for digital products right? So how about selling a "magic bean" that comes with a free download of whatever you're selling? Or sell a "planting of a seed" service that has a user area that contains special bonuses, like a download of whatever. Are these workable or too far out?
- charlesdm 12y ago
  Maybe. Some countries have all sorts of anti avoidance rules when it comes to tax. As a small company, do you really want to go to court because you're selling beans instead of downloads? I assume this will be spotted relatively quickly when authorities do an audit. Also, the larger players, they would never use this.
- mstolpm 12y ago
  The rules apply to digital products AND services (e.g. memberships, cloud storage ...). You'd need to physically ship something to avoid the rules, but then, other burdens (import/export/customs/taxes) come in place.
  - hobo_mark 12y ago
    What if, and I'm just thinking out loud here, the digital product (software) was free but you had to receive an activation code (by snail mail) to use it? Terrible user experience for sure, but under what taxation would this fall? I have read 'masters of doom' last night and I can't believe we used to ship around 'installation disks wrapped in ziploc bags', but maybe it's time to get back to that? j/k
    - lukeredpath 12y ago
      Grey area IMO and different EU tax authorities may have differing views, just to make things more complicated.
    - jakobegger 12y ago
      you also have to pay VAT on physical products when you import them. When I receive a package from the US, I have to pay VAT and customs fees on delivery (unless the sender declares it as a "present", but that's illegal)
abs_farah 12y ago
The main reason for this change, which was agreed in 2008 and came into effect on the 1st of January 2015, is to stop companies like Amazon, Apple, Google and other large companies from enjoying low taxes as they base their digital services arm in Luxembourg. For ebooks, they enjoy a low 3% sales tax. A very nice loophole for these large corporations but it has rightly so been closed. The knock on effect is that small business and retailers have to deal with this new EU VAT change too where VAT needs to be calculated at the customers location rather than the sellers location. Once they do this, they then need to report it to their respective government. This adds a lot of administrative burden on small sellers that are barely making any sales. The most important thing that the EU could have done which they didn't do is to have a threshold so that small business and individuals aren't affected. Recently, Japan introduced a similar change but maintained a threshold to protect small businesses: http://www.vatlive.com/asia-pacific/japan-consumption-tax-foreign-e-services-consumers/ http://www.vatlive.com/asia-pacific/japan-consumption-tax-fo... The EU VAT change is an unnecessary burden for small business and individuals which is why we handle VAT completely for our customers. I am the founder of Payhip: https://payhip.com https://payhip.com
- maccard 12y ago
  Wouldn't a clever idea be to let the payment procesor handle the taxes? so you hand over to google/amazon/apple to do your payment, and give them a tax free price, and they apply the tax for the buyers location, and compile a monthly invoice for you?
  - pjc50 12y ago
    Some of the digital purchase platforms will do this for you. Bare paypal won't on its own. Also "buyer's location" is unnecessarily complicated to determine and prove. What's more bizarre is this only affects "automated" systems. If you say "paypal me £5 and I'll send you a comic", you're fine.
    - tormeh 12y ago
      That sounds like a valid solution for small businesses.
lukeredpath 12y ago
As I mention in my post below, if you're a non-EU company selling digital goods and services to EU customers, then strictly speaking these new rules don't change much - it's was already the case that non-EU suppliers that supply electronically supplied services to EU customers (B2C transactions, not B2B) should be charging the customer VAT at their local rate. Businesses could choose to register in each state or a single one using the VoES (VAT on e-services) system. These rules have been in place since 2003. However I imagine that a lot of non-EU companies didn't bother with this either out of ignorance or simply because they didn't care or thought it could be enforced. Under these new rules, MOSS replaces VoES but it's practically the same thing. This mostly affects EU businesses who now have to charge the rate where the customer belongs, not where the supplier belongs.
- wbond 12y ago
  I think ignorance is almost exclusively why non-EU companies didn't use VoES. I never heard of it until this fall when I started hearing rumblings of VAT MOSS. When starting a small business where you sell digital goods, one of the last things you are thinking about is researching tax laws for the 250 countries around the world (or trying to find an accountant versed in tax laws around the world). Instead, you worry about laws based on where you operate from. I realize that the EU implemented VoES since it is easier to enforce tax collection on businesses than individual consumers, but it is pretty messed up from a conceptual standpoint. Making every business that could possibly ever sell a non-physical good from a website have to register in foreign countries, deal with making international wire transfers, generate invoices based on laws in 28 different countries, etc. The alternative being consumers pay the appropriate tax to the country they already pay taxes in…
  - symfrog 12y ago
    In many countries consumers are already supposed to pay over the VAT component on foreign purchases. It turns out, that almost no consumers ever did that, and now the collection liability is being shifted to companies instead.
    - 12y ago
moe 12y ago
Yet another reason why, as a startup, you should stay far away from writing your own payment processing - unless you're a payment startup. It's not a timesink, it's a freaking black hole.
- tomrules 12y ago
  it's less about the payment processing but about the invoicing and billing itself. anyways, it means more complexity for start ups in the EU which sucks
  - moe 12y ago
    Yes, well, I used "payment processing" as an umbrella term here. Because what you mention is in fact one of the things that people often only realise after they're already halfway into implementing a pretty Stripe binding; "Oh, oops, we have to send proper invoices, too". And then "Oh, dunning, pro-rating, etc. turns out a lot more complex than I thought". I've been there a few times, it can be done, but it has been a nightmare every single time.
    - Silhouette 12y ago
      Agreed accounting/payment processing is a crazy time sink. On the other hand, I'm not aware of any on-line payment service or marketplace site that could even support all the fundamental requirements for a lot of start-up business models to comply with the new rules right now without doing a significant degree of additional integration or customisation work anyway. For example, it's all very well having the payment service work out the actual VAT and do the invoicing, but under existing consumer protection laws in various EU states you still have to show the tax-inclusive price throughout. That immediately means you can no longer display a static price on your web site, if you add VAT at the appropriate local rate to a fixed base price rather than having a fixed total price paid by the customer and then taking a different VAT hit internally depending on where each customer is.
dreamdu5t 12y ago
Extract more money from Amazon by harming small businesses, because no tax is ever high or complicated enough! Hooray! Everybody is so much better off now that we have to pay more money to the EU to conduct business. It's so great.
- Tombone5 12y ago
  Happily it turns out that these new rules only apply in cases where the EU provides an important service: the legality of the trade itself in the first place.
deleted 12y ago
[deleted]

62 points by AliCollins 12y ago

waps 12y ago

What is to prevent some guy from making a US business that does nothing other than sell EU businesses' products to customers on their behalf ? Because selling products to the US is VAT-exempt, and US companies selling to EU customers is also VAT-exempt. I'm betting the first company doing this will be amazon.

Kudos 12y ago
That has nothing to do with this change in VAT rules. If that loophole actually existed Amazon would already be using it. US businesses are actually required to charge VAT, but smaller operations get away without doing that. At Amazon's volume it makes sense to set up tax entity in the EU to avoid import duty. For example for amazon.com selling to a consumer in Ireland sees 17% import duty + compunded 23% VAT on the item cost and the shipping cost.
- deleted 12y ago
  [deleted]
  - maxerickson 12y ago
    They mean US businesses selling and shipping to countries with VAT.
  - cmdkeen 12y ago
    That's not what he means. US businesses selling to European consumer customers should be charging VAT and sending it to the relevant government. For small ones it doesn't matter because they're in the US and so beyond the reach of the EU states. Large ones however very much are and so have to comply with the law. Amazon couldn't decide to just run all its business through the USA to avoid charging VAT to consumers, they would be sued into oblivion.
  - danmaz74 12y ago
    That's only for sales made to EU customers.
  - deleted 12y ago
    [deleted]
masklinn 12y ago
> What is to prevent some guy from making a US business that does nothing other than sell EU businesses' products to customers on their behalf ? Customers having to pay import duties and VAT, then being involved in an international tax evasion scheme.
danmaz74 12y ago
> US companies selling to EU customers is also VAT-exempt You got this wrong. US companies need to collect and pay VAT if they want to sell to the EU - edit: for digital goods.
- lukeredpath 12y ago
  On digital goods and services. I'm pretty sure the liability to pay VAT on physical goods, along with any import duty, is the customers when the item is imported. For the record, here's the HMRC (UK revenue service) explanation of the special VoES scheme that's been around for ages: http://webarchive.nationalarchives.gov.uk/20120128212010/http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageOnlineServices_ShowContent&id=HMCE_CL_000922&propertyType=document http://webarchive.nationalarchives.gov.uk/20120128212010/htt...
  - danmaz74 12y ago
    Yes I forgot to mention that - for digital goods :)
charlesdm 12y ago
US companies need to comply with these rules, but many of them don't. I think the main issue here is enforcement. I don't think it's reasonable to expect the IRS to enforce foreign legislation on US companies. And that's exactly the reason why US companies often don't comply. Edit: I'm talking about digital downloads and digital services. If you're shipping goods then there might also be import duty liabilities, not sure.
- TheOtherHobbes 12y ago
  Enforcement makes the whole process utterly impractical. The EU's VAT and tax authorities are barely keeping up with work as it is. And the idea that companies with five or six figure turnovers are worth chasing for a few percentage points of extra VAT is nonsensical when there's so much other VAT and tax fraud in the EU. I'm not convinced taxation is the real point. To me this seems more like a ham-fisted attempt to force businesses to keep records for surveillance purposes. I wonder if at some point in the next decade we'll see companies having to make their online sales records visible to the tax authorities for "automated verification", so they can find out who's been buying machetes and bomb chemicals.
  - charlesdm 12y ago
    Yes, absolutely. There are cases where hundreds of millions have gone missing in carousel frauds. I'd assume those take precedence over small VAT cases. Not sure on the second part, but I do know some tax authorities are already using various data mining techniques to flag certain behaviours.
kryptiskt 12y ago
Customs in the customer's country may intercept the package and charge VAT and duty for it. That has happened to me from time to time with Amazon as far back as 1998.
- DanBC 12y ago
  And the carrier company will charge a fee for "handling the paperwork" or whatever the hell it is they do.
  - dageshi 12y ago
    My experience has been that this happens pretty infrequently if your packages are relatively small. I think it's only happened to me once in fact and that was a long time ago.
lukeredpath 12y ago
US/non-EU companies selling digital products and services to the EU is most certainly NOT exempt, and it wasn't exempt before these recent changes - it's been a requirement that US/non-EU businesses selling digital services register to charge VAT to EU customers at their local VAT rate since 2003! Rather than registering in each EU country, they could register in one country and use the VoES system to submit their returns. It was because of this ruling that big companies like Amazon found a workaround by setting up subsidiaries in countries with low VAT rates like Luxembourg and sold their goods from there. This meant they could charge Lux VAT instead of the customer country's VAT rate. This obviously gave them an unfair advantage not only over local businesses but also non-EU businesses that used the VoES system. In effect these new rules change little for non EU businesses. The VoES system is being retired in favour of the new MOSS system which is effectively the same sort of thing, only now, ALL businesses including those in the EU, have to charge local VAT when selling digital services to the EU. For e big companies like Amazon, this closes a loophole. For those who were correctly charging VAT under the VoES system, nothing much changes. For those non-EU companies who were chose not to comply with the 2002 rules, well I'd imagine they will continue to not bother. And those who were ignorant of them (many I'm sure) might now be a bit more aware. But of course the businesses it affects the most are small EU businesses who now have to charge different rates of VAT or use MOSS when they didn't before.

JonM 12y ago

A couple of useful resources if you need to calculate VAT rates across Europe and Stripe's fees in each country: http://jsonvat.com/ http://jsonvat.com/, https://stripefees.com/ https://stripefees.com/

JonM 12y ago
It's also important to note that these new rules cover the sale of digital goods to CONSUMERS only, if you are (for example) a registered business in the UK and selling to a registered business in Germany, German VAT is not applied, and you do not have to pass it on (via VATMOSS) to the German government.
- lukeredpath 12y ago
  Yes, B2B sales between EU countries are handled using the reverse charge system, when the supply is where the customer belongs - subject to certain use and enjoyment provisions (e.g. If a UK business sells software to a German business for use in the German business's UK office it would be subject to UK VAT instead).
wbond 12y ago
If you want help determining what rate to charge a customer, I built both JS and Python libraries that include functionality to: - Determine rate based on - phone number - billing address - self-declared location - IP address - Validate VAT IDs - Fetch exchange rate info from the European Central Bank You can find the code at https://github.com/wbond/vat-moss.js https://github.com/wbond/vat-moss.js and https://github.com/wbond/vat_moss-python https://github.com/wbond/vat_moss-python. I also wrote up a bit about dealing with registering for VAT MOSS, generating invoices, etc.

chestnut-tree 12y ago

Here is a blog post by Andrus Ansip, the European Commissioner for the Digital Single Market, on the new EU VAT rules. It's not a particularly supportive or re-assuring post given the criticisms of the new rules https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_en https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_e... Apparently these rules were agreed in 2008. Countries have obviously failed to communicate the impending changes. I liked this comment below the post: "And so much for it being in place since 2008. This is akin to the Vogons in Douglas Adam's Hitchhikers Guide to the Galaxy claiming that the plans for Earths destruction have been available for viewing on Alpha Centauri for 50 years."

toyg 12y ago
Adams liked that joke so much, he used it twice: “But the plans were on display…” “On display? I eventually had to go down to the cellar to find them.” “That’s the display department.” “With a flashlight.” “Ah, well, the lights had probably gone.” “So had the stairs.” “But look, you found the notice, didn’t you?” “Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard.”
- arcadius 12y ago
  Which, in my mind anyway, is really the joke itself.
Silhouette 12y ago
It's worth noting that the post you linked to was from 16 December 2014, which is ancient history in terms of this issue. Vince Cable (the UK's Business Secretary) wrote a similarly ignorant and dismissive response[1] to an on-line petition on 8 December. However, there has been a lot of further discussion, at least in the UK, since that time. It seems that the government and tax authorities here may finally be realising how much they screwed this one up. Unfortunately, since most of the small businesses elsewhere in the EU don't even seem to know they're now breaking the rules and their respective tax authorities seem far less bothered about those rules, there isn't the same level of protest (at least not yet) so Eurocrats like Ansip may or may not be under any real pressure to fix the problem so far. And it seems that any serious fix does require further action at EU level, because national governments and tax authorities don't have the flexibility to make unilateral decisions on some of the key points (unless they flagrantly ignore the rules themselves, as several do seem to be doing already). [1] https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products/responses/25596 https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemp...

brador 12y ago

The new EU rules are only for digital products right? So how about selling a "magic bean" that comes with a free download of whatever you're selling? Or sell a "planting of a seed" service that has a user area that contains special bonuses, like a download of whatever. Are these workable or too far out?

charlesdm 12y ago
Maybe. Some countries have all sorts of anti avoidance rules when it comes to tax. As a small company, do you really want to go to court because you're selling beans instead of downloads? I assume this will be spotted relatively quickly when authorities do an audit. Also, the larger players, they would never use this.
mstolpm 12y ago
The rules apply to digital products AND services (e.g. memberships, cloud storage ...). You'd need to physically ship something to avoid the rules, but then, other burdens (import/export/customs/taxes) come in place.
- hobo_mark 12y ago
  What if, and I'm just thinking out loud here, the digital product (software) was free but you had to receive an activation code (by snail mail) to use it? Terrible user experience for sure, but under what taxation would this fall? I have read 'masters of doom' last night and I can't believe we used to ship around 'installation disks wrapped in ziploc bags', but maybe it's time to get back to that? j/k
  - lukeredpath 12y ago
    Grey area IMO and different EU tax authorities may have differing views, just to make things more complicated.
  - jakobegger 12y ago
    you also have to pay VAT on physical products when you import them. When I receive a package from the US, I have to pay VAT and customs fees on delivery (unless the sender declares it as a "present", but that's illegal)

abs_farah 12y ago

The main reason for this change, which was agreed in 2008 and came into effect on the 1st of January 2015, is to stop companies like Amazon, Apple, Google and other large companies from enjoying low taxes as they base their digital services arm in Luxembourg. For ebooks, they enjoy a low 3% sales tax. A very nice loophole for these large corporations but it has rightly so been closed. The knock on effect is that small business and retailers have to deal with this new EU VAT change too where VAT needs to be calculated at the customers location rather than the sellers location. Once they do this, they then need to report it to their respective government. This adds a lot of administrative burden on small sellers that are barely making any sales. The most important thing that the EU could have done which they didn't do is to have a threshold so that small business and individuals aren't affected. Recently, Japan introduced a similar change but maintained a threshold to protect small businesses: http://www.vatlive.com/asia-pacific/japan-consumption-tax-foreign-e-services-consumers/ http://www.vatlive.com/asia-pacific/japan-consumption-tax-fo... The EU VAT change is an unnecessary burden for small business and individuals which is why we handle VAT completely for our customers. I am the founder of Payhip: https://payhip.com https://payhip.com

maccard 12y ago
Wouldn't a clever idea be to let the payment procesor handle the taxes? so you hand over to google/amazon/apple to do your payment, and give them a tax free price, and they apply the tax for the buyers location, and compile a monthly invoice for you?
- pjc50 12y ago
  Some of the digital purchase platforms will do this for you. Bare paypal won't on its own. Also "buyer's location" is unnecessarily complicated to determine and prove. What's more bizarre is this only affects "automated" systems. If you say "paypal me £5 and I'll send you a comic", you're fine.
  - tormeh 12y ago
    That sounds like a valid solution for small businesses.

lukeredpath 12y ago

As I mention in my post below, if you're a non-EU company selling digital goods and services to EU customers, then strictly speaking these new rules don't change much - it's was already the case that non-EU suppliers that supply electronically supplied services to EU customers (B2C transactions, not B2B) should be charging the customer VAT at their local rate. Businesses could choose to register in each state or a single one using the VoES (VAT on e-services) system. These rules have been in place since 2003. However I imagine that a lot of non-EU companies didn't bother with this either out of ignorance or simply because they didn't care or thought it could be enforced. Under these new rules, MOSS replaces VoES but it's practically the same thing. This mostly affects EU businesses who now have to charge the rate where the customer belongs, not where the supplier belongs.

wbond 12y ago
I think ignorance is almost exclusively why non-EU companies didn't use VoES. I never heard of it until this fall when I started hearing rumblings of VAT MOSS. When starting a small business where you sell digital goods, one of the last things you are thinking about is researching tax laws for the 250 countries around the world (or trying to find an accountant versed in tax laws around the world). Instead, you worry about laws based on where you operate from. I realize that the EU implemented VoES since it is easier to enforce tax collection on businesses than individual consumers, but it is pretty messed up from a conceptual standpoint. Making every business that could possibly ever sell a non-physical good from a website have to register in foreign countries, deal with making international wire transfers, generate invoices based on laws in 28 different countries, etc. The alternative being consumers pay the appropriate tax to the country they already pay taxes in…
- symfrog 12y ago
  In many countries consumers are already supposed to pay over the VAT component on foreign purchases. It turns out, that almost no consumers ever did that, and now the collection liability is being shifted to companies instead.
  - 12y ago

moe 12y ago

Yet another reason why, as a startup, you should stay far away from writing your own payment processing - unless you're a payment startup. It's not a timesink, it's a freaking black hole.

tomrules 12y ago
it's less about the payment processing but about the invoicing and billing itself. anyways, it means more complexity for start ups in the EU which sucks
- moe 12y ago
  Yes, well, I used "payment processing" as an umbrella term here. Because what you mention is in fact one of the things that people often only realise after they're already halfway into implementing a pretty Stripe binding; "Oh, oops, we have to send proper invoices, too". And then "Oh, dunning, pro-rating, etc. turns out a lot more complex than I thought". I've been there a few times, it can be done, but it has been a nightmare every single time.
  - Silhouette 12y ago
    Agreed accounting/payment processing is a crazy time sink. On the other hand, I'm not aware of any on-line payment service or marketplace site that could even support all the fundamental requirements for a lot of start-up business models to comply with the new rules right now without doing a significant degree of additional integration or customisation work anyway. For example, it's all very well having the payment service work out the actual VAT and do the invoicing, but under existing consumer protection laws in various EU states you still have to show the tax-inclusive price throughout. That immediately means you can no longer display a static price on your web site, if you add VAT at the appropriate local rate to a fixed base price rather than having a fixed total price paid by the customer and then taking a different VAT hit internally depending on where each customer is.

dreamdu5t 12y ago

Extract more money from Amazon by harming small businesses, because no tax is ever high or complicated enough! Hooray! Everybody is so much better off now that we have to pay more money to the EU to conduct business. It's so great.

Tombone5 12y ago
Happily it turns out that these new rules only apply in cases where the EU provides an important service: the legality of the trade itself in the first place.

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