
Making Sense of the New VAT Rules - AliCollins
http://rachelandrew.github.io/eu-vat/
======
abs_farah
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-fo...](http://www.vatlive.com/asia-pacific/japan-consumption-
tax-foreign-e-services-consumers/)

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
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?

~~~
gambiting
In EU you have to advertise the price with the tax already included. So even
if somebody else is handling the tax rates for you, you have to advertise the
correct price on your website depending on where the buyer is.

~~~
tomrules
well. you can also do it the other way around and charge the same price but
the VAT component changes. -e.g. 5€ gross price will result in different net
prices depending on the buyers location. hence slight differences in the
margin for you

~~~
Sujan
You also have to display the VAT rate and share of the price. So this won't
help much.

~~~
jpollock
That's easy to work around, just set the total price to the maximum for all
possible rates. It does mean that you're pocketing more revenue from countries
with lower sales tax rates, but makes it simpler to manage in the front end.

The calculation to make is will you lose in terms of total profit by charging
people in Luxembourg 24% more than you would otherwise (3% sales tax vs 27%
VAT in Hungary)?

------
chestnut-tree
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_e...](https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_en)

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
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
Which, in my mind anyway, is really the joke itself.

------
lukeredpath
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
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
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.

~~~
Taxamo
Hey, JP here from Taxamo. A few points. These new EU rules are effectively
seen as the template for the taxation of the digital economy. The OECD has
stated that a simplified online registration scheme (such as MOSS), is "the
only viable option for applying taxes to e-commerce sales by non-resident
traders to private consumers (so-called B2C)." Tax authorities around the
globe are looking at how these new rules work out as numerous countries (e.g.
Japan, South Africa, Australia, Canada) are either planning to introduce
similar rules, or have already revealed plans. The VAT is now due in the
country where the digital service is supplied. It is that country's tax, the
companies are vehicles for the collection of this tax from their end users.
But there's so much more to these new rules than evidence collection or
invoicing. That's why we have created a solution that covers all elements of
the new rules. Take a look for yourself: [http://www.taxamo.com/how-it-
works/](http://www.taxamo.com/how-it-works/)

~~~
symfrog
Taxamo seems to be purely focussed on EU compliance. Do you know of any other
countries that have already or are about to put in place similar sales tax
regulations? Would Taxamo add timely support for new countries and regions or
will the focus remain only EU?

Also if you limit sales to businesses (and verify their business status) in
the EU region and therefore have no VAT on your invoices do you still have to
file a zero value VAT submission via MOSS?

------
JonM
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
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
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).

------
moe
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
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
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
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.

------
brador
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?

~~~
mstolpm
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
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

~~~
jakobegger
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)

~~~
hobo_mark
There is usually a threshold under which no VAT is levied (different for each
country however).

------
dreamdu5t
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
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.

------
waps
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
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.

