Do you trade digital products and services to people in Europe?
If you answered ‘yes’, do you know about the new EU wide VAT laws that go live Jan. 1st 2015? They affect all businesses whether registered in Europe or registered outside of Europe.
There are big changes coming to EU VAT laws
The changes affect automated digital transactions of digital products and digital services that are not unique. They switch the VAT charge from that of from Place of Service to that of Place of Supply.
When the laws come in on January 1st, 2015, any business that supplies a digital service or supplies a digital product to a resident of an EU member state, and that product is both delivered by an automated self-service shopping cart hosted on the Internet AND is not unique, then that service provider or product provider is expected to collect VAT for that transaction.
The VAT must be collected at the rate set for that EU resident’s tax jurisdiction. That VAT must then be paid to the resident’s tax jurisdiction. This new VAT system applies to B2C — Business to Consumer — digital transactions of digital products and digital services.
This is how those EU VAT rules affect you
The new EU VAT regulations apply to sales of PDFs, eBooks, training videos, website theme templates, website theme plugins, online membership sites, software, web hosting, domain registrations… They affect any off-the-rack digital product or off-the-rack digital service that is sold via an Internet shopping cart to anyone who is resident in the EU.
The changes also affect how customer data is handled for EU digital sales. This applies to any one who sells digital products and services to residents of EU member states.
- The new VAT regulations affect anyone who sells non-unique self-service digital products or services over the Internet.
- The rules require digital vendors to collect VAT for the 28 member nations of the EU
- The rules require product and service providers to pay collected VAT to whichever EU tax jurisdiction their customer is resident in.
- That also means you need to register for VAT in Europe if you trade to EU residents
- Depending on how you register for EU VAT, you might need to register in each European Union tax jurisdiction
Think this applies to big business only?
Think again. These changes to EU VAT rules apply to big multinational companies, they apply to small local businesses, they apply nano & pico home businesses and they apply to sole traders.
The new rules come into force January 1st 2015. Very few people are aware of the new tax regulations. Those of us who do know about the new regulations are making damn sure those who need to know about them are informed about the new tax rules that affect digital trade with the European Union.
Every business that sells automatically delivered digital products to EU residents or any business that automatically provides digital services to EU residents will be affected.
Businesses that think this won’t affect them need to ask themselves:
- Who supplies them their digital services,
- Who they supply services to (digital or not)
- Whether their digital service providers will stick around to supply them in 2015, and
- Whether their customers who rely on or who sell digital services will still be in businesses after January 1st 2015.
Every link in the business supply chain that breaks is a double loss because each link represents somebody’s customer and somebody’s supplier.
Welcome to the world of Place of Supply VAT
Each EU tax jurisdiction has its own VAT rate, or multiple rates in some cases. The EU intends to pursue businesses worldwide to ensure tax is paid where due to EU member nations.
Know it or not, the EU has required non EU businesses to collect VAT on EU sales since 2003. The EU now intends to aggressively pursue VAT payment from businesses trading with EU residents.
This does not affect physical products sold over the Internet. Physical products will be affected in 2016.
Pay attention to what this change to EU VAT means
The new VAT regulations affect consumers and businesses.
For businesses worldwide
- You will need to collect VAT for the country of residence of each of your EU customers.
- You will need to collect 2 pieces of non conflicting proof of each customer’s place of residence.
- If the 2 pieces of place of residence proof provide conflicting information then you will be required to contact your EU customer to get more proof.
- You will need to store details of the sale and the proof of residency information for 10 years.
- By storing this data you become subject to EU data protection laws.
- EU Data Protection laws may require you to store EU data on a web server within the EU.
This is an administrative nightmare. Welcome to the new world of taxation based on Place of Supply, not Place of Business.
For EU consumers
- Prices will go up
- Suppliers of digital services & products will now charge you VAT at your local rate and possibly at their own rate too
- Businesses will now pay more for their digital services.
- Businesses will pass those additional fees onto you.
Whichever way we look at this, product and service prices are about to go up for businesses and consumers within the EU; and the costs of doing business with EU residents and with EU businesses is about to go up.
The increased administrative burden of trading with EU residents and businesses has prompted some businesses to state they will cease to trade with EU residents and EU businesses come 1st January 2015.
Help us get these EU VAT regulations scrapped
We have a petition going at Change.org. We have a survey for affected businesses and consumers to complete. We have a website to tell you more about the changes to EU VAT. We have Twitter storms in motion with more Twitter storms planned. We have a Facebook group where you can get involved.
Here is how you can help
Join us by visiting our websites, Facebook group and by joining the Twitter storm:
Twitter and Facebook Hashtags: #vatmoss #vatmess
Together, we can make a difference.