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

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

#11

Post by fivedogit »

CalRobert wrote: post #8
fivedogit wrote: post #3

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 fe…

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

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.

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

#12

Post by petercooper »

thibaut_barrere wrote: post #10
petercooper wrote: post #7

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 use…

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.

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...

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

#13

Post by wbond »

lucio wrote: post #9

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?

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.

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

#14

Post by 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.

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

#15

Post by 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...

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.

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

#16

Post by 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.

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

#17

Post by mike_hearn »

lucio wrote: post #9

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?

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!

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

#19

Post by themartorana »

higherpurpose wrote: post #4

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 unifie…

"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

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

#20

Post by pjc50 »

higherpurpose wrote: post #4

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 unifie…

The big change is between accounting for 0 types of VAT (normal UK small business exemption) and more than zero types of VAT.

The law is supposed to have a clearinghouse ("one stop shop") per country, to which you forward all your non-local VAT information and they handle it.

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