Important for ALL Sellers !!
 

Hello all,

Are you operating an International shop selling downloadable products and you're dealing with clients from EU Zone? If yes, be aware that from 1st January 2015, according to new EU resolutions for electronics sales you must collect EU VAT from clients living in EU countries (EU zone) without a valid VAT id. Doesn't matters if you're a US (or any non EU country) business. If you deal with EU clients you must collect EU VAT.

Read the official announcement
http://ec.europa.eu/taxation_customs....htm#new_rules

Also a post for rules modification from an Australian marketplace selling scripts/templates
https://help.market.envato.com/hc/en...EU-VAT-Changes

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The main change is that now the VAT is calculating not depending on the Seller's country but depending on the country where the customer belongs

When I did this post I've some doubts that maybe have misunderstood the new rules as my English is not in that high level, especially when it comes to legal rules.

But now I'm sure. I host my sites at Hostgator which is an US company and they started even from now to collect EU VAT. I had to provide them my VAT id to exclude me from collection.

TBH I don't see how they are going to be able to enforce this on people living in the USA.

Yeah its likely that will not happen.

I mean think about it:

Currently each individual EU country enforces the law themselves, via tax audits.

VAT is an ‘end-user-tax’ so EU companies get to reduce any VAT they have paid, which is why their book-keeping has all the information tax authorities need.

Consumers don’t keep books on their VAT purchases. Consumers do get tax reductions from certain goods, so they’ll save the receipts and send them to tax authorities. Most of those are physical goods like work clothing, but there are also some goods that could be digital, e.g. work literature.

However, there are small businesses which aren’t registered for VAT yet. They may keep books already, yet they are categorized as a consumer by this law. As a rule, if an EU company cannot provide you a VAT code, they are a consumer. Yet they’ll keep books, save all receipts and are a target to tax audits.

There’s also a separate enforcement system. You must register as a VAT payer in each of the countries where you have consumer sales. Another option is to register to VAT on eServices (VOES) system in one EU country. VOES is a similar system than MOSS (UK), but for non-EU businesses. Each country has their own system, but it’s enough to register just in one country.

When you are registered, the authorities can then follow up that you send the reports and payments on a regular interval.

But if you aren’t registered, there’s very little enforcement.

To really enforce the law in the US, EU would need help from the US tax authorities. At the moment US tax authorities show little interest in enforcing this – moving wealth from US to EU isn’t in their best interest.

So I just do not see how they will enforce this on a US based small company that is providing software such as vBulletin addons for sale.

If I really wanted to get around it, I could just sell my users credits, that they can use on the site to do various things, such as a usergroup title markup, increased PM space etc. But they also could use these credits to purchase downloads. So I am really not charging them actual money for downloads.

Exactly! And you could charge a subscription fee for them to pay to get access but they are not paying for an item directly.

Well there is a logic explanation for this. It's COMPETITION. They focus to prevent EU customers to buy from outside EU rather to collect VAT.

Let me give a real example. I'm locating in Greece and I want to rent a dedicated server for Web host. For the example purposes I found 2 companies offering the exact same features on the exact same price. eg $200/mo.

The first company is locating in UK so I've to pay $200 + 23% EU-EL Vat = $246/mo. The other company is locating is USA so as I don't have to pay VAT the total cost is $200/mo. This is the problem. This is why they count it as: Unfair competition for EU Companies.

The reason that they focus only in electronic delivery products and not in tangible is because tangible products are going throught the customs control when they come from non EU countries and the clients has to pay Tax instead Vat but in most cases this is the same. Actually sometimes Tax is higher than Vat.

@ozzy47
As for your comment " TBH I don't see how they are going to be able to enforce this on people living in the USA".

They'll do something very easy. They'll blacklist your domain from all European ISP. This mean that nobody from Europe will be able to access your site. That's why Microsoft and Google are paying any penalty that EU law assigns to them.

So if you don't mind if your site is not accessible from Europe then there is no reason to worry.

Last comment. I've search a lot to find how the companies will deliver the VAT that they'll collect and I find nothing. That's why I'm saying that they don't focus on collecting VAT but rather to prevent Europeans to buy from outside EU just as a way to avoid pay VAT. In simple words if you collect VAT you'll become more rich as you'll only collect without to deliver it :) :)

@HM666
"And you could charge a subscription fee for them to pay to get access but they are not paying for an item directly"

It also includes services, subscriptions etc. In general mean includes anything non tangible.

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Just found an article dated Dec 24th, 2014, so 3 days ago. Among the others it says:
"The change was made because EU wants to get more money from transactions for American companies – or to force them to move more operations to EU to get VAT reductions."

http://www.happybootstrapper.com/201...u-vat-changes/

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Well, you can try Googling and you'll find so many articles/questions for this issue. Try:
what happen if i do not collect eu vat for electronic sales

It's not affecting me at all, as I don't sell anything to anyone. All my mods are provided for free, and are free of any silly branding in the footer. :)

Its makes absolutely NO sense for them to try and collect taxes from a country they are not in!!! That is ludicrous! There is no way they can enforce it outside of the EU. Yeah, ok they maybe able to black list web site URL's but then I'm sure if that happens quite enough they will get sued.

Even if they block an IP there are ways around it. And how are they going to make someone who sells on to say ebay charge the extra I know they won't make me do it

They can, on the same way than they issued the "Safe Harbor Privacy". As for the law, even if I don't know how it will works, it has been already accepted by World Trade Organization, 3 years ago. Just came the time (after the "trial" period) to start valid. So it's an international law.

PS: "Trial" period: Don't know the word. It's the time frame which they allow before the law being active.

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Really don't know. I'm not a Lawyer not even an Accountant. What I know that there is such rule valid from Jan 1st, 2015. Also, as I've post before, Envato Marketplace and Hostgator Hosting company, will start collecting this VAT from that day. Actually Hostgator started it from middle of November, don't know why.

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As I said, it's only for electronic services/downloadable products, and as I know most items on eBay are tanginle products. For them the new rule has no effect.

But I found this article:
http://tamebay.com/2014/11/ebay-eu-v...-jan-2015.html

When they say a Trail Period. It means that they are trying it out for a certain length of time. Like a Netflix account, they have a trail period of 2 weeks where they do not charge your credit card, then after its up they charge you for the month. Its just simply a time frame that they are trying something out. :)

No they wont.
That would be impractical to impose and maintain, and incredibly easy for anyone to get around.

ISPs are also extremely reluctant to block anything, and only do so when forced by law, and afaik, there is no such law for this.

Yeah that was my thinking. They are not going to spend the time & money to try and do that to everyone, nor can they.

Interesting article on Forbes, http://www.forbes.com/sites/janetnov...-and-services/

Interesting as it seems to be the most detailed article, but as it was long I lost the meaning. Tried with Google translator was worst.

In general, with a simple YES or No, does it says what I've understood from other articles?

1.- Are non EU based companies (eg from USA, Canada, Australia etc), obligue to collect EU VAT since Jan 1st, 2015.

2.- The VAT rate is now depending on the clients country and not on the seller's country. Right? eg tilll now I was collecting 23% even my client was from UK or Germany where they have different rate. Now I must collect (eg) 19% if he is from UK, 21% if he is from Germany etc

Thank you

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PS: Does anyone knows if vBulletin will update Subscription manager to support this rule?

Nick perhaps the best thing for you to do is in setting up your shop treat the VAT charges like shipping. in many shopping carts they have shipping that can be configured according to each country, state etc and so is the case with taxes usually. This might be the easiest way for you to keep up with 19% here 25% there 10% here and so on. So you would just have to place the VAT for each place.

The article stated that you can reset your prices to include collecting the VAT tax from consumers if you wish. So let's say you normally charge $49.95 for a mod that you sell in your store and the highest VAT tax is say 27% you would up your prices from $49.95 to $63.44 is the exact amount at 27%, you could round it off to say $63.45 to give a nice normal number people are used to.

And yes according to that article you will have to now collect the actual amount of VAT from which country the person is located in. So you will HAVE to have your cart set up to force them to put in their address.

Well see how I've setup it:

1.- In Taxes table you can add rows like:

Title : EU-EL VAT 23%
Tax: 23

Title : EU-DE VAT 21%
Tax: 21

and so on..........

2.- In Delivery Locations table you can add:

Location: USA
Tax: None
Shipping: None
Is EU Country: No
Is Shop Country: Yes

Location: Greece
Tax: EU-EL VAT 23%
Shipping: Area A
Is EU Country: Yes
Is Shop Country: No

Tax and Shipping are selections from droplists. I did it this way as some sellers for their own reasons should not collect VAT. In this case they will select "None" for Tax.

The reason that I added that "Is EU country" and "Is Shop country" are:

1.- If "Is EU Country" is Yes (and offcourse if Tax is not "None"), then during checkout the user must fill a field with his VAT id. Should be an automatic validation with EU authorities. As I seen they have upgraded their system and now not only it returns True/False but also returns the Full name and Address.

2.- That "Is Shop Country" needs for a special way. The actual way that VAT collections works is:
a] Non EU : No VAT
b] EU client but not sellers country:
b1] With valid VAT id: No collection
b2] Without VAT id: Collection
c] That the most important: When Seller and Buyer are from the same EU country then with or without VAT id you must collect VAT. That's why I added that field to check when they are the same.

As for the Shipping. VAT is different than the Tax that you know. Goes only to net price of product/service and not to extra like shipping.

Sounds like you have it set up pretty much the way I was suggesting. :)

TBH, I think this is more targeted at digital download giants, like music, app's for phones and such. I don't see them worrying about some guy, with a website that offers mods/styles/services for vBulletin for sale.

I agree really but I look at it this way. Very soon I will be opening a site that will sell skins for a larger business situation and if the business really takes off nicely then it never hurts to know the laws and what I may have to do. :)

Ohh yeah with out a doubt, it is best to know the laws, and abide by them, but I still do not see how they will enforce this on US based sellers, if the US does not make it a law also.

Yeah agreed. I do not see that being a possibility either.

USA, Canada, Australia etc have already signed it since 3 years now. The problem is that I don't know the correct name. Is it World Trade Organization or G20 or somethink like this. In anycase is an international organization about trade rules and laws.

If I'm not mistaken they've signed it on the same time as the Harbour Privacy Policy some years ago but the law had not immediate effect.

Sorry but my English is not for discussing such topics:)

Cold day in hell that I collect VAT for Euro governments.

From the Forbes article, at the end:

It is impossible to enforce this for companies or individuals that don't and will never have a physical presence in Europe.

Yep pretty much what I'm thinking. They do not have any jurisdiction here. Any good lawyer could take care of it if they should come chasing you down IMO.

Basically they have made a rule they hope people outside the EU will use, but they have no way to enforce it other than ask nicely. :)

The sad thing is many US companies that do not have a presence in the EU are falling for it and collecting the tax. :eek:

Seems to me the US went to war over a similar thing over 200 years ago.

I for one would not do it unless the US made it a law also. I mean it's not like if i ever fly to a EU country, they are going to arrest me when I get off the plane for not collecting.:p

Agreed and yes there was some sort of war around 200 years ago. lol The British found out that we did not take kindly to tax from another country as well. :)

In 1815 ?

I thought that was in the 1700's ?

You're right, because I remember the bicentennial celebration. Those tall ships really lifted the nation's spirits after Watergate.

LOL history is not my thing personally. I hate history that is my excuse and I'm sticking to it.

It's not the only trick that some US (but also Australians, Canadians etc) companies are doing to collect extra (but illegal money). The most common trick is to detect your location and shows theire prices in Euros but NOT exchanging them but rather showing the same price in euros.

For example a dating site (http://www.internationalcupid.com). Their normal one month Platinium membership costs $35.95. If they detect that you're belonging to a European country, the same membership with the same facilitities costs 35.95 Euros while the exchange rate is 32.92 Euros. Once I sent them a complain email stating that this is illegal asking them to refund me the difference otherwise I'll report then, and ...voilla in less than 24 (!!) hours not only they issued a FULL refund but they offered me a complimentary Platinium Membership for 3 months !!

But even known sites like pctools.com are doing the same :(

Oh well now that is screwed up IMO. That is a practice I would NOT do myself. I list everything in US dollars only and do not expect someone to pay more or less depending upon where they live. :(

In no way I wanted to blame all US companies. The big part of them are honest companies. But always there are some "smarties".

I completely agree with you. What those companies are doing is NOT right IMO. That is bad business practice IMO as well.

Being a historian by profession and such, I wonder if there isn't just a little difference :) 240 years ago it was the Americans paying the taxes (or not paying). It's not like the EU wants to tax Americans in America, is it?

Want to, or are trying to? :) But yeah you're right, it's different.

Where is it illegal though? Not in the USA. They have to pay a fee to convert Euros to Dollars so giving it to you for the exchange rate that day is also unfair to them. You got very lucky someone offered you anything.

In the USA, in towns close to the Canadian Border, especially along the New York State Thruway which is a highway that gets a lot of Canadian traffic, for years you could use Canadian Dollars to pay but at the exchange rate of $2 Canadian = $1 USA. That rate continued for years and years, even during times where the Canadian dollar was actually worth more than the American dollar- but the thing is- it's only worth more to some banker or currency trader on Wall Street. In the small towns and the people collecting the money, real places, won't take Canadian money. If you try to pass a Canadian quarter as an American one you may get it thrown back at you if the seller notices it. You can't say "but it's worth 27 cents" because it ain't worth anything to me if I can't put it in a vending machine or whatever else I might do with a US quarter.

The fact it costs more to do business in another currency should be a natural advantage for a company native to the local currency to open- they should be able to compete for cheaper locally than an overseas company.