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The elephant in the room (VAT Rules Jan 2015)
AnthonySmith
Member, Patron Provider
Hi Folks,
Surprised this has not come up here yet so thought I would kick it off, from what I have seen WHMCS will take care of the point of sale VAT rate so that is really of no concern but the fall out is going to be interesting, I suspect UK based hosts that are used to enjoying the very high threshold (such as myself) will be hit hardest with this.
For those that don't know about the 2015 VAT changes I will try to tl;dr it for you.
As of January 2015 if you are selling digital good or services within the EU (regardless of your origin) you must charge VAT at the local rate of the buyer i.e. if you customer is in Italy you charge VAT at the rate for Italy, this applies to businesses and individuals alike.
You have 2 choices, you can either register for VAT in all 28 member states and file 28 different VAT returns every 30 day - 1 year depending on the regulation of that member state.... or ..... you register for the MOSS system while you still have to keep separate accounts for all 28 member states you can charge at 1 standard rate and do your submissions through 1 online portal.
In order to use the MOSS system you must first be VAT registered yourself.
There is no threshold i.e. you can take €50,000 before this is applicable.
This also apples to businesses operating in countries outside of the EU who want to sell to business and individuals within the EU (host gator for example will have to collect the VAT for customers who are from the UK or any other EU member state, and they are actively complying with this)
Having spoke to a few people who live in countries with strict VAT laws anyway they do not see this as a huge issue, personally I think it is a real nightmare situation but it will simply be considered VAT Fraud not to comply.(Which is jail-able)
It has not been well publicized in my opinion and will catch a HELL of a lot of companies out come April when they start asking for the VAT you should have collected.
And yes every part of hosting inc IAAS/SAAS is covered (I called and asked)
Comments
I saw this on WHC but didn't realise that it affects companies below the usual threshold. This is going to be a nightmare. No idea how to tackle this at the moment.
Wow, more red tape. So let's say a provider in the US is selling a US VPS to individuals/business in the EU zone. Would VAT have to be collected for that situation?
I don't get it, does selling digital goods or services and having some customers in the EU count as "selling digital good or services within the EU"? If so, any "VAT Fraud" is the European country government's own problem and has zero impact on the non-EU company, they have no jurisdiction outside the EU...
Yep sadly it does.
Yes, and the penalty for none compliance is that they can actively pursue you in the USA for tax evasion... it is fucking bonkers
The customer may be expected to pay VAT separately, or be expected to not purchase from such companies if they don't collect VAT. But there is no way that the EU can force a for example US company to collect VAT.
What about other countries? I highly doubt EU seriously has an agreement with every other country where they can enter the country and extract the offender and jail them for tax evasion. Where did you read someone claiming this was the case?
Sadly that is not true, the USA has signed up to this, the bottom line is everyone cried about amazon, netflix, ebay etc etc evading tax (it worked out to 200billion) so they put this in place to prevent any possible tax evasion by changing to point of sale for almost anything none physical to the point of use i.e. the address of the person you sold it to.
Yes it absolutely does.
So, is it just U.S.? Or like Canada, Australia, Taiwan, China too?
Edit: well anyway I'm really confused about this, going to read up on it.
I am sure in the first instance they will not be able to impose anything outside of Europe/USA/Canada however I did ask about moving my company to Belize for example, that will be considered tax evasion unless I live there as of 2015.
Its tragically funny. When the EU was formed, it was supposed to be more cohesion with the thought that ultimately, it would be a USE (United States of Europe). It's turning out to be more a UNE (United Nations of Europe).
As I understand it if you do not comply they will be able to protest your country to prevent you making any further sales within the EU, how effective that will be is unknown.
Move to the Caribbean. You don't need an umbrella in the summer
Just another bit I forgot to say, gateway services will be the only thing that removes the compliance requirement.
example: you sell music on itunes, it is then apple who are responsible for identifying the end users country of origin as they are the marketplace and people making the sales i.e. the recording artist who makes things available to purchase on itunes does not collect end user information.
How would this effect offers on LET with the current rules? Would we have to make sure pricing does not go over $7 with vat included per country?
Nice of them to clarify which services are affected and which are not.
That is already the case and was clarified a while ago any offers are pre tax.
Because that's what's important here...
I am secretly hoping paypal comes to the rescue and takes this 'gateway' like responsibility.
Technicly a company from USA would also have to charge VAT from EU citizens. However i doubt this is enforcable if the said company has no assets in the EU.
But this is not all of it. For instance we (as EU companies) must charge Switzerland tax from customers from Switzerland and Norway tax from customers from Norway. And we must register for VAT in these two countries, since they are not in the EU so don't fall in the MOSS category.
oh joy......
Yeah its a pain
What we could really do with is 1 gateway service that handles all VAT via MOSS and charges a small percentage per transaction.
A bit like 2checkout but you know, worth using, kind of like an itunes marketplace for hosting related services.
Who ever does this will be an overnight millionaire, sadly I suspect no one will.
@AnthonySmith - its a nice idea, but imagine the liability of being that gateway. Fraudulent customers + Fraudulent suppliers - OMG
No doubt prices will go up accordingly
Well, the burden of registering with all respective tax authorities and the resulting reporting nightmare aside, it seems fair and levels the playing field somewhat. Too bad all those EU government worker bees haven't brains enough to make this process more business friendly. You think this is bad? Just wait! Next up: US, Canada, Russia, China, India, Brazil - to name only the biggest markets - introducing similar cross-border legislation.
Will registering business in Hong Kong get around this?
I suppose so on the surface anyway, the reality is it will stifle new business growth.
Right now (in the UK anyway) lets say someone has an idea of "Hey I can sell this as an online service worldwide" they only need 1 or 2 dedicated servers to deliver it and it seems great as they can make around £30,000 p/year doing it without complex accounting.
As of January 2015 they will now have to think 'ok before I begin I need 28 VAT numbers or I have to register for VAT+MOSS+Norway VAT+Switzerland VAT, file quarterly audited accounts and keep records per country.'
I imagine that will put a lot of people off.
I could completely understand this if thresholds had been considered i.e. you do not have to do this if you are not required to register for VAT in your own country yet, I know we have it easy in the UK as you can deduct a lot of your revenue that is applicable against the current £84,000 threshold to begin with from not vat'able sales i.e. sales to the America(s)/china/Africa etc (ones that would not be considered vat'able revenue to begin with if you were registered)
The real kicker is you cant even register for Moss until mid October.
This is obviously a subject I will be looking into - and from various angles, too. Offhand, I do see interesting possibilities here
You can but if you are not a resident of that country and have previously been doing sales in the same market e.g. they believe you have done this to simply avoid compliance they can fine you/ shut you down or in extreme cases bring fraud/VAT evasion charges against you.
Honestly though I think that if you are not in the EU to begin with you probably have a good few years of flexibility to begin with before they have any real method to impose any of this.
The fact that big hosts in the USA like godaddy and hostgator are already complying is going to make it a problem for a lot of people though.
Worst case scenario, you live in the EU, register a business in HongKong/Belize or anywhere outside of the EU dont be to surprised if in 5 years you get a knock on your door demanding an absurd amount of money in VAT evasion charges when they finally catch up with all this.
They already did a similar thing in Europe with basic income tax for ebay sellers when they started making paypal hand over all financial information for accounts that took more than £1900 in a year, people on benefits or those that supplemented their income on ebay got massive fines and criminal records up to 6 years after the fact.
If you use paypal.... they will find out, it is that simple.
You seem to be looking at this from a sole proprietorship perspective. Setting up a separate legal entity (i.e. HK limited company) should insulate you from such legal action. And who's talking about noncompliance?
Not really, although it affects every business type including sole trader, plc, ltd etc.
Not really, as a director of said company you are responsible for the way it conducts business, you cant commit fraud with a limited company and say "It was not me, the company did it"
No one, but what would be the point of changing your company location to simply comply anyway.
I am bringing up the point of compliance because people seem to think living in the EU but moving your company is a way of getting out of this.