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I am not sure whether it's an appropriate place to ask this question. If this is the case please point me to the right direction.
Here is the situation: I am trying to change my payment processor company. The current one is located in USA. Does not take VAT as far as I know from european customers.
Now I have a choice between two companies: one in USA and the other in Great Britain. Both take VAT.
As I understand the store is required to charge VAT for customers from the European Union.
Please explain: How does the store that is located outside of the European Union deal with this VAT? I mean how the international company pays/returns this accumulated VAT. I don't understand.
I thought that if the company has an office in the the European Union then it charges VAT. Otherwise, it doesn't.
That's why I am thinking about working with the United States company because, as I thought, VAT is not charged. But now I am confused.
Your help is sincerely appreciated.
We deal with electronically distributed software, so there is no physical delivery.
I incline towards the online store that is located in the USA. They have an office only in the USA. So for me it is strange that they take VAT. I will definitely make a call and ask about this situation.
Does anyone know how they can prove that they actually report the accumulated VAT and don't just accumulate it :o)
It looks like this VAT On e-Services is a pain: declarations 4 times a year, transfer of the accumulated amount + looks like bussines organizations are charged VAT and then they have to send a request to get their 17.5% back.
Is your business originally located in the US, the UK or somwhere else? I'm a bit confused about that aspect!
That's what I am thinking about. From one side, I don't want to "play" with those guys and want to follow rules.
From the other hand, I don't understand how they are going to control it. + practically 17.5% discount for EU customers is an advantage.
It's kind of like the Use Tax here in the US. If you don't get charged sales tax for something, at the end of the year you are supposed to total everything up, calculate the tax yourself, and then advise the state of how much you owe and send your payment. Not many people actually do all of that and there is really no way for the state to enforce it either.
While reading the thread I came up with one more question:
Many of our clients are companies. So they, as far as I understand, pay the VAT but then claim it back.
As a person who lives outside of EU I have no knowledge of the accounting in EU. My question is if the company buys an e-service and does not pay VAT, could it have any problems when it gives an account at the end of the financial year? Something like: "Why didn't you pay VAT here and there?"
The way it - roughly - works over here in Denmark (and I guess most other EU-contries will have a similar structure) is that you (your company) are equired to keep records of everything you buy and sell incl receipts, invoices etc. An accountant (or yourself) will do your tax and VAT-returns etc. Although the tax and VAT authorities will not check all companies, they will pick some companies every year (I don't know how many) who will be thoroughly investigated. These companies are picked at random but also if they look suspicious, ie they buy more than they sell or the VAT-returns don't add up.
Most accountants will not accept invoices or receipts that obviously miss VAT or other items.
What I'm getting at is that most companies will want to do things properly because of this risk of getting investigated. If this investigations shows that your company is ducking tax or VAT, it can result (depending on the degree) in (big) fines, not being allowed to run a bussiness or even prison.
If you do offer to attempt avoiding VAT, your potential customers in EU-countries will probably think that you are willing to cheat not only the tax and VAT authorities but also your customers. They may even report you to the relevant authorities.
I would strongly advice you to talk to the VAT Office from the relevant EU-country. They will be able to explain to you in simple terms what brochures or online articles on the subject actually mean and advice you on your particular situation.
Don't give up yet! It might not be as difficult as it seems. If your product is good, people will want to buy it regardless of VAT. And it is after all your customer who pays the VAT, not you.
Please report back, I'm sure lots of us have an interest in finding out how you get on, I know I do. Good luck!
"VAT on e-services applies to the sale of electronically delivered products, such as downloads, and electronic services to private customers inside of the EU offered by companies located outside of the EU."
"Who is not affected?
Software publishers headquartered within the EU, and sales to corporate customers headquartered within the EU are not affected by the directive and handle their sales as before."
So as long as one located outside of EU provides e-service only to EU business companies, he or she doesn't need to take VAT.
Hope this info helps someone else.
Thanks for reading up on this, Nova, and sharing your info. I hope that this makes life easier for you.