
EU’s New VAT Rules Could Create a Mess for Startups - scribu
http://techcrunch.com/2014/11/25/eus-new-vatmoss-rules-could-create-a-vatmess-for-startups/
======
wbond
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.

~~~
mahouse
> I'm almost considering shutting down sales to EU customers.

Then someone will launch a business that will do the same you do, but
complying with regulations.

Taxes must be collected; without taxes, the welfare state collapses. You
should know that, to be able to sell something in a market, you must
understand its regulations first, and respect the decisions the citizens have
taken (in this case, regarding taxes) through democratic ways.

~~~
wbond
The issue is that I am now subject to collecting taxes for a country that I
have nothing to do with. I have never set foot in an EU country, I don't
choose to sell to EU customers, they just come to my US-based website and pay
in USD. I comply with all of my local tax laws. I can be involved with my
local government and affect change. I can't do that in the EU.

The way this is all written, I'll actually have to do work to BLOCK customers
from the EU, or face legal issues. It seem more reasonable to require that the
people who LIVE in the EU deal with their own local taxes.

Can you imagine having to keep track of tax laws of 195 countries? I'm sure a
company like Amazon can deal with that no problem, but self-employed people
developing software, music or ebooks are basically screwed and now need to
waste a ton of their time trying to figure out exactly how to jump through the
ever-changing hoops.

~~~
rmc
What legal issues? Will the EU take you to court? Will they direct the (say)
UK police force to come to your business and sieze property to pay back debts?
This isn't going to happen.

~~~
wbond
Well, if I choose to visit the EU in the future, I presume I could face issues
related to tax avoidance?

------
flexie
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
> 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
Indeed. And if they then put the VAT rate at 0 it would hurt businesses even
less ;-)

~~~
raverbashing
Consumers pay VAT, not business.

Similar to the sales tax in the US/Canada

~~~
bjelkeman-again
Actually VAT is paid by every business (with a few exceptions) on the extra
value it creates.

[http://en.wikipedia.org/wiki/Value-
added_tax#Comparison_with...](http://en.wikipedia.org/wiki/Value-
added_tax#Comparison_with_sales_tax)

~~~
raverbashing
Yep, you're right. It's a more complicated calculation

But there's VAT to be paid on the sale, which is kind of similar.

------
fivedogit
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
How does hiring someone in Kentucky become more difficult due to European
Union VAT documentation rules?

~~~
fivedogit
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.

~~~
paulhauggis
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
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.

------
michah
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
Isn't the lack of VAT exemption for small businesses also new?

~~~
nulluk
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

------
bartkappenburg
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
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
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.

~~~
michaelt
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)

------
petercooper
_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/registra...](http://ico.org.uk/for_organisations/data_protection/registration/self-
assessment)

It should also be mentioned the changes only apply to B2C sales, not B2B.

~~~
thibaut_barrere
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
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/channelsPort...](http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&id=HMCE_PROD1_029955#P1106_138630)

------
noelwelsh
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-
dig...](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)

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
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
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.

------
k-mcgrady
Previous discussion from a few hours ago:
[https://news.ycombinator.com/item?id=8657074](https://news.ycombinator.com/item?id=8657074)

------
higherpurpose
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
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
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.

------
rachelandrew
This is how we are thinking about implementing this for Perch
[http://rachelandrew.co.uk/archives/2014/11/20/implementing-t...](http://rachelandrew.co.uk/archives/2014/11/20/implementing-
the-new-eu-vat-rules/)

I am also collecting links and resources on GitHub
[http://rachelandrew.github.io/eu-vat/](http://rachelandrew.github.io/eu-vat/)

------
jasonkester
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
>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.

------
gabemart
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.

------
adwf
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
That happens now though.

If I accidentally click UAE instead of UK then I save 20% on a whole host of
products.

------
malditojavi
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

------
adwf
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!

------
MistahKoala
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
_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.

~~~
MistahKoala
> 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?

------
Tombone5
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.

------
maljx
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.

------
lucio
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?

~~~
mike_hearn
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!

------
adekmm
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.

------
jbb555
I was taking this seriously until "The new rules are especially onerous for
women entrepreneurs".

No, it's just the same for everyone.

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

~~~
nichol4s
And or the location attached to your creditcard.

~~~
icebraining
Assuming you pay by credit card and not, say, Paypal.

------
mootothemax
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
> 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.

------
kdeldycke
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)

------
gst
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?

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

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

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

