If you sell digital products/services to the EU and you’ve been hiding under a rock you need to look at #vatmoss
Essentially this shifts the burden of VAT to the buyers country and it affects everyone who does business with people in the EU - Sitepoint included. So for instance if I sell a digital product to a B2C customer in France I have to add France’s VAT rate to the sale, then submit a quartlerly VAT return to cover every EU country whether sales are made or not. However, if it’s a B2B sale then VAT isn’t always added (as far as I can tell).
The big problems for sole traders is that you can’t escape, even if you are not VAT registered… it’s a huge can of worms
How is an automated process that delivers the digital product by email supposed to know to charge extra to some buyers when the entire process has no idea of where any of the buyers are? Also how is the process supposed to know how much extra to charge those people even if it can identify them?
I distinguish between Australian buyers and those elsewhere by providing two currency options - Australian and US dollars. Those buying using AUD are presumed to be in Australia so GST gets charged while everyone else pays effectively the same price but without my needing to deduct GST. So there is really nothing in it for the buyer when choosing the currency and it relies on the buyer choosing AUD when they are in Australia. I do some other business in the US which is why I also accept USD but I have no intention of accepting any other currency.
So the only way I would ever know that a buyer is in the EU would be if they contacted me after making the purchase and told me where they were. I guess I could add some text to the sales page telling EU residents that they need to add a zero to the end of the USD price when buying and then contact me after making their purchase so as to arrange to pay the necessary VAT. If they don’t contact me then I will assume they are not in the EU.
Normally you’d use the billing address to get the country, then you can apply the appropriate VAT rate for that country, then if it’s a B2B sale deduct the VAT.
An this only applies to online sales of digital products where delivery is totally automated or requires “minimum human intervention” (whatever that means).
It gets worse, and I haven’t make this up…
If you sell a PDF to a B2C customer and you manually create an email/attach/send the PDF you don’t need to charge the VAT. If you let your shopping cart system do it all automatically you do have to charge the VAT!
So as my automated system isn’t set up to handle identifying where the buyer is (or even whether they are a business or not) the only way I can correctly process those EU B2C purchases is to process them manually - in which case no VAT needs to be charged.
So all I need to do is to ask those residing in the EU to email me to arrange for manual intervention in the process - in which case I only need to charge them the extra for the time I take to manually process their order instead of having to add VAT as well?
It is important to point out that this new law is only if your selling digital products/services from one EU country to another.
If you are outside EU selling digital products/services to a EU customer, there has been a similar law in place for years.
Even Norway applied the same law a few years ago “with the excuse” that EU has done if for years and it work.
The big question is if they will really bother with the small fish, or if they will only enforce the law for the big fish. So far the law for charging VAT when selling to an EU country from the outside, has only been enforced on larger stores/companies.
I’ve just finished updating my site so that it’s VAT compliant for the new rules which take effect next year; I’m from the US and sell digital ebooks here in the US and in Europe. With the new rules in the EU, you need two non-contradicting pieces of evidence to show what VAT should be charged. It’s a bit of a pain as I don’t want to collect unnecessary information from my US customers. So, after emailing with the HMRC in the UK a bunch of times, they told me that the following approach would be reasonable:
I check my consumer’s IP to see if they’re in Europe.
If they are in Europe, I collect their billing phone and address. Then, if at least 2 of the 3 pieces of information don’t match (IP, phone, address), I ask them to make sure that their billing phone number and billing address are from the same country.
The process that I mention above is for my B2C customers. I do have one B2B customer, where they then sell the ebooks to consumers. However, it’s then their responsibility to pay the VAT, as they’ll be charging VAT to their consumers. For this business customer, I just provide them with a receipt of what they’ve purchased.
I am not sure how the taxing authorities would govern and implement this rule. Say a person from US or India decides to sell products and say just 1 customer from EU purchases the product then how would the process work. Say if its a $1 ebook and you have to charge say 20% VAT on that which is $0.20 I think the time consumed for the entire episode will be much more than the income earned out of it. Rather than blanket rules I think EU must consider that orders over say $500 or something like that or many would simply stop selling eproducts because they are not sure of the market and the entire process of collecting the VAT depositing to authorities and being compliant with VAT Rules is too much because you already are dealing with local tax authorities and in this case one more tax authorities is like killing small businesses.
From what I understand, even 1 customer would be VAT taxable. And, yes it would be great if the EU had some rules in place regarding a thresh hold limit. However, (playing devil’s advocate), this would put brick and mortar EU businesses at a disadvantage.
Indeed if you only make one $1 sale to a B2C customer to any EU country you are liable to charge that country’s tax, then once a quarter submit a tax return even if it’s just 20 cents or null return!
Companies outside the EU selling to EU countries should have already been charging VAT since 2008, but as with these things virtually nobody outside the big companies have even heard of it.
Whether or not the tax authority in the country you make sales to would actually chase you up for 20 cents is anyone’s guess. Certainly if you were selling a significant volume to EU countries it’s a possibility.
As there are millions of american & non eu small businesses online, this eu law is impossible to enforce outside of Europe. It is just pure cheek for the Eu to dictate this tax collection to the rest of the world.
You state that you will ask the customer to provide the information so that the 2 pieces of evidence match up, but then what if they refuse to comply with that?
That’s a really good question! And, I’m hoping that the 2 pieces of info that I ask for are reasonable enough that they’ll comply (billing address/phone number). With that said, my business is seasonal in nature and the next big group of purchases should happen in a month or so. Feel free to shoot me a private message and I can give you an update on how it’s going.