UPDATE: Jan 23rd, 2015:
1) JVZoo (Fabulous!)
Of all the selling platforms out there JVZoo’s response to the EU VAT rules has been the most innovative and in my opinion it provides the most complete solution.
As a product vendor you can:
a) Block Countries
This is “Solution 4” in my original blog post below. Particularly useful for UK vendors who sell only a tiny amount into other EU countries – by switching off these sales you don’t have to register for MOSS and you can bypass all of the associated admin work.
[A potential issue here are the anti-discrimination laws in the EU. As I understand it (I am not a lawyer and could be wrong) an EU based business can’t refuse digital sales to customers in other EU countries without a valid reason. I’ve yet to see examples of “valid” reasons or “non-valid” reasons, or indeed any qualified clarification on this – if you have any ideas please do leave a comment!]
…or if you do wish to sell into the EU…
b) Choose to charge VAT or not (obviously switch this on to be compliant with the Jan 1st rules!)
c) If you enable VAT, whether to charge by vendors country or, to be compliant with the rules, customers country.
d) Allow customers to manually override their country (e.g., live in UK but buying in France)
e) Download full reports of transactions by country which can be uploaded into your MOSS account.
In my view this is a brilliant set up and definitely good news: If you want to sell into the EU then it makes the bureaucracy much less time consuming. But if you’d prefer to bypass the admin work altogether then you can simply opt out by switching off all sales to EU countries.
2) WarriorPlus (Disappointing!)
I queried what WarriorPlus are planning to do in response to the rules and they implied that they have no plans to change, at least in the short term.
Essentially if you want to use WarriorPlus to sell into the EU then you need to set up individual tax rates inside PayPal. This is a manual process and of course puts the entire burden on each vendor.
I also asked about a country blocking feature which they said they would consider but again, no firm plans on this to my knowledge.
So in contrast to JVZoo a disappointing response from WarriorPlus I would say.
3) Clickbank (Already Compliant!)
As mentioned in the post below Clickbank has always charged the correct sales tax for every region in the world.
Since they effectively sell your product for you (unlike PayPal, WarriorPlus, JVZoo etc) the responsibility lies with them not you.
So literally nothing changes when it comes to the Jan 1 st EU VAT rules and happy days if, like me, you use Clickbank a lot in your business!
4) UK Government Flow Chart
The UK government have published a handy flow chart to clarify the VAT rules. Here’s a link to it (opens in new window).
ORIGINAL BLOG POST IS BELOW – Ideal for getting up to speed if you’re not yet clear on all this stuff!
This post is most applicable to those of us who live in the EU and especially the UK.
I am not a qualified accountant so this is not advice, only my opinion and nothing more 🙂
So, what is happening?
Currently, if a business sells a digital product (ebook, membership site subscription, software etc) VAT (i.e., sales tax) is charged based upon the country where the business is located.
This has led to a lot of tax avoidance by larger companies.
For example, corporations like Apple, Amazon, Microsoft and many others have previously located their EU businesses in Luxembourg where VAT on eBooks is 3%.
This rate has applied to sales in ANY country in the EU. Even though the rates in most of those countries are higher.
To clamp down on this the EU are, from Jan 1st, changing the rules so VAT is charged based upon the buyer’s location.
So continuing with Luxembourg as the example:
Currently: Luxembourg registered business sells to a UK customer. VAT is 3% (Luxembourg’s “Super Reduced Rate”)
From Jan 1st: Luxembourg registered business sells to a UK customer. VAT charged will be 20% (UK’s rate)
It’s certainly a big shake up with Luxembourg set to lose 70% of its VAT revenue (according to Taxamo.com) while the UK is set to gain £300 million ($480 million) per year!
What’s the problem for small online businesses?
The problem is a large admin burden and that there are no minimum thresholds for sales into other countries.
If you sell 1 eBook into France then you’ll need to pay French VAT on that.
Sell another copy into Germany and you’ll need to pay German VAT on it.
When you consider that there are 28 counties in the EU with 75 different VAT rates you can see that this amounts to a lot of red tape and hassle for small businesses!
How to comply:
There are several options here. I’ll explain them and then tell you which I’m going for…
1) Register for VAT in every EU country you do business with
For any small online business this would be completely impractical. Enough said.
2) Use MOSS System
MOSS (Mini One Stop Shop) is a system which means you don’t have to register for VAT in every EU country.
Instead you submit quarterly EU sales reports and payments in the MOSS system. HMRC will then pass this on to the tax authority of each relevant EU country.
Note: In the UK if your turnover is less than £81k then you don’t have to charge VAT to UK customers – only other EU ones where, as we’ve said, no minimum thresholds apply.
Still quite a hassle for a lot of small businesses.
3) Use a selling platform
Using a platform which acts as the seller for you.
Obvious platforms are Amazon, Ebay or Clickbank which are already fully compliant and mean you won’t have to register for anything. They’ll charge the correct VAT and pay it directly for you, so nothing changes compared to how it is right now.
JVZoo, WarriorPlus and other similar systems are not classified as platforms by the legislation – here you’re still classified as the seller so it’s your responsibility.
4) Stop selling to other EU countries
By not selling into other EU countries none of this matters. You won’t have to worry about any of it!
I’m going to use a combination of (3) and (4).
I decent chunk of my income comes from Clickbank already. I like it and given these new laws I like it even more.
Also, 90%+ of my sales are into US, UK, Australia and Canada. EU sales accounts for only a fraction of the remainder.
So balancing the loss of EU sales against the hassle of creating, preparing and submitting MOSS reports on a quarterly basis becomes a no brainer.
On a personal level not selling into the EU isn’t an outcome I’d like because I’ve had some lovely customers in the EU and made some great contacts there too – but businesswise it’s extremely difficult not to see it as part of the solution.
The only slight challenge is how to actually stop selling into EU countries.
It would be nice to have an option in PayPal to “switch off” the EU (I believe a similar option is available on a country basis but only for US PayPal accounts).
Alternatively you could use a plugin.
When a visitor clicks they are redirected to checkout (e.g., JVZoo/WarriorPlus/PayPal buy link) unless their IP address is from the EU in which case they get sent through to a page on my site explaining why I’m not selling into the EU (or perhaps just redirect them to this blog post!).
There are several plugins if you search on the WordPress.org site:
Or… you could have a custom one created (product idea?).
I had geo-redirect features included in one of my own plugins. There are free IP databases online you can use and hiring a developer on Elance/Odesk should only cost maybe $200-$300 dollars.
This could change yet…
The EU legislation has taken many by surprise including small online businesses and accountants.
So this is definitely a situation in flux.
Whatever happens though, I’m happy as I can be with my own solutions for now and I’m certainly not worried by it.
I’m just lucky that such a small portion of my sales comes from EU countries.
And for anyone reading this who is starting out in online business, don’t let it put you off whatever you do – there are thousands of people all in this boat together. The collective effort will see solutions and a clearer picture emerge.
What do you think? Does the EU care about small online businesses or do they just not understand them? ALL your comments and views are welcome – don’t be scared. The ones expressed in this post are of course, just mine… Cheers, Rob 😉