With 1/1/2015 new Eu Vat is ready to affect your business.
What does new Eu Vat Regulation implies ?
From 1st Jan 2015, new rule for Value Added Tax (VAT) is applicable on supply of digital services by Business to Consumers in EU. This means instead of paying the VAT in the country where your company is registered, it will now need to be paid where the consumer resides (If they are from the EU)
Whose business is going to get impacted with this ?
The legislation applies to digital products only (telecommunications, broadcasting and e-services), such as Joomla extension providers, downloaded applications, e-books, music, games, online courses etc. If you have a physical store then taxes will apply as before, so nothing to worry till 2016. And if you are selling both then you have to maintain 2 different Tax rate for di.
Does all business who supply digital services get affected ?
If you supply any service or goods to any of the European customer (B2C Model) irrelevant of the place you belong, then your business have to comply with this new rules. A person living in Germany pays a US company for to get access of any digital goods. Then US company should charge the German customer with German Vat rate.
How can you deal with it ?
There are three options available :-
- Register for VAT in each EU member state where your business has sales. Potentially, this can mean registering with 28 tax authorities.
- Register with new system VAT Mini One Stop Shop (VAT MOSS). Submit a single quarterly return and payment to HM Revenue and Customs (HMRC) and reduce your administrative burden. Rest HMRC will send an appropriate part of tax to relevant country.
- Don't Sell into EU, I know its isn't viable.
Hidden Challenges with this new Rule !
- No Threshold Limit - If you sale to single customer in a country even a product of 1$, you have to register for vat system of that country ie there is no minimum threshold limit.
- Knowing the vat rates - You have to remember Vat rate of 28 member states apart from your country. These vat rates varies from 15% (Luxembourg) to 27% (Hungary). Not just this, you have to monitor correct rate wrt time changes. Now think for accounting expense for this.
- Keeping Records - Need to keep track of records of 10 years. So it’s advisable to to set up some proper accounting software, as Payplans will not fully serve the purpose here since it is not an accounting software.
- Record Location - Keep track of their location using any of the process like credit card information, billing address, Ip address etc
How Payplans will help you to adopt these regulations?
- Payplans architecture is quite flexible which allows you to create different eu-vat rules for different countries to properly manage your taxable income.
- During checkout process consumer needs to select his / her country and respective tax rate will get applied.
- Handle different tax rates for business and personal systems.
- For collecting record location information like credit card information, billing address, Ip address etc, you may use user details / subscription details apps of Payplans.
The new regulations were put to take more VAT from big online players like Amazon, Apple, Google, Microsoft who used to sell most of their content from Luxembourg which has the lowest VAT rate in the EU but now it put burdens onto small business.
Note of Disclaimer - The above things are the best of knowledge what we understand from new EU VAT regulations. So we strongly suggest to consult all these with your Accountant / CA / Taxable representative who look after your finance system.
Anything to share?
If you have any additional tips or advice, share them in the comments section below!