Changes to EU VAT rules from January 2015

[RWAP]

I admit to having an interest in this topic, but basically changes to EU VAT rules could well have a major impact on our favourite hobby.

Up until this year, I have not had to worry too much about VAT as the turnover from my business has been below the UK VAT registration threshold.

For those who do not know, the EU brought in regulations from January 2015, that for all e-services (software downloads, fees on sellmyretro.com for example), when they are supplied to a consumer, then VAT has to be added based on the location of the purchaser. Despite calls from the UK government, they point blank refused to implement any form of threshold, meaning that if someone sells a bit of software which can be downloaded online for £1, then WHEREVER THE SELLER IS BASED IN THE WORLD, the seller needs to find out where the buyer is located and then account for VAT on that £1 at the rate applicable to the country where the buyer is located.

The rules are very complex, as you needed at least 2 pieces of non-conflicting information showing the location of the buyer - which is nigh impossible in this day and age where people use VPNs and Proxy servers for accessing the web, or may be on holiday in one country, living in a second country, but have a credit card issued by a third country. Thankfully the UK HMRC have extended an exception indefinitely, whereby small businesses can rely on the just the location provided by PayPal as the address of the buyer - although other countries have different attitudes to this.

From my point of view, as I do not offer any automated software downloads, to date, the only issue is over the fees on sellmyretro.com - luckily to date, the overseas sellers on that site have been businesses, and therefore outside of the regulations and so are charged according to UK VAT rules. However, I do need to keep my eye on this in case someone outside the UK decides to list some personal items for sale - at which point I need to decide what to do!!

So far it is a worry, but I am coping with it... However, more worryingly, is that Australia, Japan and South Korea are following suit, with the USA and Canada (at least) also looking to do something similar ( based on their local taxes).

HOWEVER, more worryingly is that from 2016, the EU plans to extend these rules to EVERYTHING SOLD ONLINE - which means that I will need to increase my prices to take account of the headache of extra administration and submitting quarterly VAT returns, and base my prices on having to pay the highest rate of tax charged in the EU (28% ?) as there is no online tool for checking the VAT rate for each country live and therefore no guarantee that I could show each buyer the correct charge for their country before they make payment.

One option would be to find local businesses in each country which would purchase the items from me as a business to business transaction and then sell in their own country - but that will only drive up prices further...

Many businesses have already decided to withdraw automated downloads of items, or simply block sales to other countries within the EU.

What I would ask is for everyone to contact their MEP and outline the potential impact that these rules will have on the retro computer market and demand that a threshold is set below which VAT will not have to be charged. The EU thinks this is only a UK problem as not many people are complaining from other countries!

There is in fact some rules in place at the moment for selling physical goods overseas, but they currently have a threshold whereby if total sales per year to each country do not exceed €35,000 (or €100,000 in some countries), then VAT does not have to be charged according to the buyer's location. It therefore seems sensible to continue with that same threshold for ALL ITEMS (including e-services and items sold online).

The EU has talked about introducing a threshold as part of the single digital market, but it is unclear (a) if and when that threshold will be introduced, (b) what level the threshold will be at and what it will be based on, and (c) what happens in the meantime for e-services sold by small businesses throughout Europe.

[PokeMon]

Hi Rich,

yes - there are changes but only for electronic services like downloads or telecommunications which are affected from these regulations.
For physical goods you have quite the old rules with deliver and buy limits which are quite high to avoid bureaucratic processing of orders.
For delivering in Germany you have to exceed a limit of 100.000 EUR per year - there is an individual limit per country.
I don't think you will exceed these limits - above you have to register with VAT account in each country and pay the VAT to that countries financial institute.
Below you have to take VAT as business seller as well but can pay that to your local financial institute.

I am not sure why they break these rules for electronic transactions at all with no limits at all. This has to do with maybe VAT for ebooks which can be processed for companies in Luxembourg with about 3%. Maybe this an amazon rule we have to follow - could be avoided with the limits written above. So the point is to avoid electronic services at all where you can and to sell software maybe on cassette tapes/cd's/dvd's and so on. When people use your sellmyretro platform I would say you know the location with the registered address and I wouldn't say you are really responsible for that information - maybe a small risk.

Yes - the EU is always good for bureaucratic monsters ...
The new one is called MOSS - Mini One Stopp Shop.

Karl

[RWAP]

The point is that they plan on introducing the same rules for ALL GOODS (including physical items) from 2016, so action needs to be taken this year to ensure that they retain the existing threshold on physical goods. They are also planning on removing the small value exemption on goods imported from outside the EU !

As for location on sellmyretro - because sellers have to register with the site, I can use their registration address and compare this with their IP address and address used on PayPal when they pay - hopefully 2 out of the 3 give the same information....

Not so easy where you just have a BUY NOW button on your website.

This is one of the reasons why I have not included the facility for sellers to list software downloads on the site (I was thinking of revival-studios and dragon's lair for example)....

[RWAP]

If you want to read more about the plans for 2016 - see : http://europa.eu/rapid/press-release_ME ... 920_en.htm

[Paul]

Set just kidding to ON
As Mr Blair wants to leave the EC all this should be no long term problem.
Soon every buyers will be from different nations with different laws.
Set just kidding to OFF

By the way, when I sell something on SMR I am acting as a private person, no business involved at all.
Therefore you need add the appropriate vat already!
I can understand that all this is frustrating but I don't think having all laws incompatible as before doesn't really make things better.
Kind regards
Paul

[PokeMon]

The point is that they plan on introducing the same rules for ALL GOODS (including physical items) from 2016, so action needs to be taken this year to ensure that they retain the existing threshold on physical goods. They are also planning on removing the small value exemption on goods imported from outside the EU !

Well - I would relax. First the EU makes some proposals in 2016 (to decide) which come into local laws in general up to 2 or 3 years later. The EU can not directly enact a law itself - they can agree with a votum about a new regulation (which will be discussed and changed many ways till all agree) which has to be implemented in national law from every EU member. If it is not implemented in law within the time (of normally 2 or 3 years) they can impose a fine against that country. This process is called in general "harmonization". So I wouldn't expect effective changes here earlier than 2018.

The main purpose of changes is to harmonize the regulations inside the EU to let the customers have the same rights (return goods after few weeks for example) when buying form another country and to increase the cross-border selling inside the EU. I think they won't make the rules harder for smaller companies because this doesn't support the main target (increase selling in general). In fact they plan:

What has been proposed in the Strategy concerning VAT?
The Commission will make legislative proposals in 2016 to reduce the administrative burden on businesses arising from different VAT regimes including:
- Extending the current single electronic registration and payment mechanism to cross-border online sales of physical goods.
- Introducing a common EU-wide simplification measure - VAT threshold - to help small start-up e-commerce businesses.
- Allowing for home country controls including a single audit of cross-border businesses for VAT purposes.
- Removing the VAT exemption for the importation of small consignments from suppliers in third countries.

What benefits will this bring to businesses?
The benefits for business of this initiative are:
Simplicity – A business only has to deal with one tax administration which in itself is a significant simplification.
A level playing field – there will be no difference in VAT rates between goods ordered from websites in third countries, other Member States or domestically.
Certainty – Clear rules allow business to plan for engaging in cross-border e-commerce. Furthermore the same rules will apply for goods and services

So in my eyes this regulation will result in a central (european wide) clearing agency for VATs - maybe supported from your local tax administration - which has to be declared (maybe on a quarterly base) how much VAT is to pay country by country and you just pay the VAT to your local tax administration and they have to make a transfer with other countries. In fact they send and receive money. I think this will be at the end similar to VAT processing where you have to declare from which customer (VAT ID) you bought or sold goods. As the private customers don't have a VAT id this maybe only a (monthly or quarterly) ratio of distribution.

So in my eyes nothing I really worry about.

[RWAP]

Even if Britain leaves the EU it would still be a major headache, as we would still be expected to pay the VAT - just there is no mechanism within the EU to determine who should enforce it against a seller based outside of the EU - although I stand the risk of receiving VAT fines and charges from the other 27 member states....

Ah damn - I really don't want to be registering for VAT and paying over £2 - £3 in VAT a quarter just for your sales!!

Actually I spoke to the HMRC about this a few weeks ago, and although it was off the record, they said that because sellers like yourself are designing and making the products from scratch, and then selling them for a profit, then it would be fine to treat you as a business - the fact you are not VAT registered does not matter as you should be declaring the income from these sort of sales to your local tax authority anyway

[RWAP]

The point is that they plan on introducing the same rules for ALL GOODS (including physical items) from 2016, so action needs to be taken this year to ensure that they retain the existing threshold on physical goods. They are also planning on removing the small value exemption on goods imported from outside the EU !

Well - I would relax. First the EU makes some proposals in 2016 (to decide) which come into local laws in general up to 2 or 3 years later. The EU can not directly enact a law itself - they can agree with a votum about a new regulation (which will be discussed and changed many ways till all agree) which has to be implemented in national law from every EU member. If it is not implemented in law within the time (of normally 2 or 3 years) they can impose a fine against that country. This process is called in general "harmonization". So I wouldn't expect changes here earlier than 2018.

True - apparently they discussed the e-services VAT changes in 2008, but assumed that small traders did NOT sell directly and therefore would not be affected. The problem is that the EU make these decisions without understanding how internet businesses operate - that is why you need to raise the issue with your MEPs now, not once it becomes law.

The main purpose of changes is to harmonize the regulations inside the EU to let the customers have the same rights (return goods after few weeks for example) when buying form another country and to increase the cross-border selling inside the EU. I think they won't make the rules harder for smaller companies because this doesn't support the main target (increase selling in general). In fact they plan:

What has been proposed in the Strategy concerning VAT?
The Commission will make legislative proposals in 2016 to reduce the administrative burden on businesses arising from different VAT regimes including:
- Extending the current single electronic registration and payment mechanism to cross-border online sales of physical goods.
- Introducing a common EU-wide simplification measure - VAT threshold - to help small start-up e-commerce businesses.
- Allowing for home country controls including a single audit of cross-border businesses for VAT purposes.
- Removing the VAT exemption for the importation of small consignments from suppliers in third countries.

What benefits will this bring to businesses?
The benefits for business of this initiative are:
Simplicity – A business only has to deal with one tax administration which in itself is a significant simplification.
A level playing field – there will be no difference in VAT rates between goods ordered from websites in third countries, other Member States or domestically.
Certainty – Clear rules allow business to plan for engaging in cross-border e-commerce. Furthermore the same rules will apply for goods and services

So in my eyes this regulation will result in a central (european wide) clearing agency for VATs - maybe your local financial institute - which has to be declared (maybe on a quarterly base) how much VAT is to pay country by country and you just pay the VAT to your local finance institute and they have to make a transfer with other countries. In fact they send and receive money. I think this will be at the end similar to VAT processing where you have to declare from which customer (VAT ID) you bought or sold goods. As the private customers don't have a VAT id this maybe only a (monthly or quarterly) ratio of distribution.

So in my eyes nothing I really worry about.

True - we can only hope they will make it easier for small business, but as has been shown with the regulations on e-services, the 1000s of small businesses who sell e-books, knitting patterns and software online have been ignored and caught by the VATMOSS mess some people have spent £1000+ on software to be able to capture the data, and then paid over £15 in VAT to their government to be distributed to 2+ countries..

If I was already registered for and paying VAT, this would not be so much of an issue, but remember that at the moment, I do NOT charge VAT as I am below my country's threshold. However, unless they impose a suitable threshold, I will have to work out 28 different rates of VAT for every sale and increase my selling prices accordingly

It is not a question of ratio of distribution, they expect 2 non-conflicting pieces of evidence to be retained for 10 years to identify the location of the buyer and then you have to complete a form to say how much you sold to each country during the previous quarter, the VAT rate you used and the amount of VAT you need to hand over. There is not even anything other than a PDF provided of the VAT rates for all 28 countries (and for example, books may have a different VAT rate to an interface).

[RWAP]

By the way one thing I could do on sellmyretro is to follow Google example and state

"Everyone who sells items through this website is doing so with a view to selling items for value, and therefore are treated as businesses - if you are not a business then you must not use the service for selling items"

That is basically what I got from Google for using their paid for translation services see https://support.google.com/cloud/answer/6090602?hl=en

That is a hell of a sweeping assumption!

[PokeMon]

Well, in fact I have no experience with MOSS as I am not selling immaterial goods but in my experience of declaring quarterly VAT reports for import/export goods with companies holding a VAT number it is more annoying than really a pain (personal time needed to declare is below 15 minutes per quarter). This is only a declaration with "zero" payments for me. But you are right if you say, there is no really lobby for the small companies. But I am not sure if this announcement really helps and reaches the right people sitting in offices in brussel.