Forum Moderators: buckworks
The law adds a 15 to 25 percent levy on select Internet transactions such as software and music downloads, monthly subscriptions to an Internet service provider and on any product purchased through an online auction anywhere in the 15-member bloc of nations.
rest of article
[bizreport.com...]
Does that mean all ISPs and websites in the UK which offer advertising space etc etc will have to be VAT registered and claim it from customers?
Regards,
Brent
As I understand it, it just means that foreign companies will have to pay VAT on digital sales in the EU (as they would if they had a shop here, so quite right too really). The vast majority of UK or EU ISPs are already paying VAT. You may have noticed that most quote VAT exclusive prices and then add the 17.5%.
If you are not VAT registered because your turnover is under the VAT threshold then you will be exempt. Don't know how it will affect small US companies selling ads to EU firms - I guess its the big firms they're out to get.
I could be wrong of course, but it's rare.
Still, if you are based in the UK and selling goods outside the EU, you don't have to charge VAT, which is a nice way of offsetting the shipping to the US.
Cy
European dot-coms have been charging customers VAT since their inception. Their overseas rivals though have been exempt...."It's a massive competitive disadvantage. It's good to see at last it being eroded," said David Melville, general counsel of UK Internet service provider Freeserve....
Freeserve ... saying its chief rival AOL UK ... saved 150 million pounds ($249.7 million) in tax payments over the years.
Here's what (it's not all online sales):
select Internet transactions such as software and music downloads, monthly subscriptions to an Internet service provider and on any product purchased through an online auction
Goodbye.
If an American buys something from an EU company, they should pay the VAT. If a European buys something from a US company, they should pay the relevant US sales taxes. That's simple, and that's how it generally works.
I have a server with a large hosting company in the US and I pay Houston's city sales tax on it. No big deal. I don't want to end up paying that *AND* European tax on it.
But now the EU has decided it wants to force companies worldwide to collect tax on its behalf. This is about as stupid as the Australian Inland Revenue demanding that some mom and pop store in Russia charge all Australian clients sales tax, and then send it back to Sydney!
Just because the EU is a large entity should not give it the right to push through rulings which are in violation of common international tax policy. And, let's face it. The EU is only doing this because EU companies are anti-competition and over priced. Why else would I buy stuff from the US if I could get it in the EU?
Yet more EU nonsense, on a grander scale than the EU's 'you can't sell bananas which are too curved' fiasco of the 90's.
Regards,
Brent
In the UK you can be 'registered for VAT'. This means that you will charge VAT to your customers, and that you'll pass this VAT on to the tax man. In return for this hard work, the VAT man will allow you to 'claim back' the VAT *you* paid to buy stuff for the business.. parts, office equipment, fuel, and so on.
If you (or your company) makes over about $75,000 a year you HAVE to be VAT registered, there's no option. Below this, you can choose whether to be VAT registered or not.
Many self-employed people or small businesses choose not to register for VAT (if they make under $75k per year) because it causes a big headache with your accounts. If you're VAT registered you have to use a specially 'approved' accountant to sign off your books at the end of the year.. and this costs money.
If you're not VAT registered, then you don't need to charge your customers the extra 17.5% tax, and you also don't need to do anything special with regards to your accounts.
The big problem, however, is that if you're not VAT registered, you can't claim the VAT back on your expenses.
This results in a situation where the big guy wins, and the small guy loses. The small guy is effectively forced to use an expensive chartered accountant if he wants to be VAT registered and claim back the VAT on his expenses.. whereas the big guy probably uses a chartered accountant anyway.
In my own case, I'll be paying 17.5% more on my Adwords buys from July 1st, and I won't be able to claim it back.. whereas a VAT registered person (or company) will.
If I ran an ebook or downloadable music site in the US and had buyers in the EU, why would I bother collecting the VAT? Legally, there really isn't any way they can apply a tax to my business anyway. I have no physical or legal presence there, in any form. I'm outside of their jurisdiction, so they can't come after me here. They can't have the ISP on their end monitor all transactions, since they are SSL encrypted. I suppose they could legislate that ISPs there have to block sites that don't collect it, or some such nonsense. But I would guess that citizens wouldn't really like that one.
Or am I off the mark and does this only apply to EU-member nations?
Companies like Amazon and Google are following along with what the EU says, because they also have operations in the EU, which the EU could come down on. Companies that are entirely US based, however, can give the EU the finger, since there's not really anything the EU can do to force US businesses to tax different people in different ways.
The CEO of my ISP (who's in the US) has clearly stated that he will NOT be levying VAT on his European customers, whether the EU say or not. And good to him! :-)
The last I heard a UK firm could have an annual turnover of about 40,000 UK pounds before it had to register for VAT. That was a few years ago so it will have gone up by now.
Engine is right though, if you are VAT registered, you can claim the VAT back.
Taxes and death, can't get around none of 'em can you? ;)
The small guy can lose out by being VAT registered - you pay 17.5% to the VAT man on sales and claim back 17.5% on purchases (in general). But, surely your sales should be higher than costs - so you owe the VAT man. You can either put your prices up by 17.% or lose 17.5% profit by being registered.
But if you want to sell to businesses, VAT registration is really the only way to go.
Essential facts here [hmce.gov.uk...]
Outstanding question: How does the EU force compliance? (in the US for example)
The small guy can lose out by being VAT registered - you pay 17.5% to the VAT man on sales and claim back 17.5% on purchases (in general). But, surely your sales should be higher than costs - so you owe the VAT man. You can either put your prices up by 17.% or lose 17.5% profit by being registered.
That's not really true. If you charge $20 per hour for your time, let's say, and suddenly you register for VAT.. you still charge $20 per hour and also add $3.50 for VAT. If the client is another company, they claim back that $3.50, so you still cost $20 whether you're VAT registered or not. You don't lose 17.5% profit, because that was never your profit in the first place, it's just money passing through you from the buyer to the VAT man.
That said, many larger companies use VAT for cashflow purposes, since it inflates their revenue by 17.5% in a real world sense, even if the accountant doesn't see it that way.
NOT VAT REGISTERED:
Cost: £100+VAT = £117.50
Sell: £200 = £200.00
PROFIT = £82.50
VAT REGISTERED
Cost: £100+VAT = £100.00 (when VAT claimed back)
Sell: £170.21+VAT = £170.21 (£200 when VAT is paid)
PROFIT = £70.21
So you either put your prices up and become more expensive, or you pay the VAT yourself when becoming registered.
The problem is that while we call this "Sales Tax" governments consider it "Sales & Use tax".
For example, "Sales tax" in Massachusetts is 5%. New Hampshire has no "Sales tax". However, as a Massachusetts resident I am supposed to pay the 5% sales and use tax to the state of Massachusetts on any goods I purchase in or from New Hampshire.
So is VAT a "sales and use" tax or just a "sales tax"? If it's the former this new policy is understandable. If it's the latter I'm totally confused.
If an American buys something from an EU company, they should pay the VAT. If a European buys something from a US company, they should pay the relevant US sales taxes. That's simple, and that's how it generally works.
You are going to remain confused as long as you think this is the case.
In fact sales from the EC to outside the EC are in the vast majority of cases not liable to VAT. Not only that if a US citizen is on holiday in the UK and buys a suitcase for example they can keep the receipt and claim the VAT back. See here [hmce.gov.uk].
And of course in the US inter-state and international mail order shipments are exempt from tax and foreign visitors do not have to pay either on production of a passport and ticket. But in practise this entitlement is difficult to get sometime, except in places like NY where there are tax free shops for the tourists.
*gifts
Reciprocal in nature.
They give us money.
We give them merchandise.
In practice, a large proportion of VAT registered businesses are companies. Which, by law, must submit annual accounts. Most companies will use a chartered accountant to prepare these, even if they are not formally audited (with turnover below a certain level, accounts do not have to be audited).
The cost of using a chartered accountant is generally more than reimbursed by the 'insurance' if I can put it like that that it gives the business in dealing with the likes of the Inland Revenue and VAT people; people who choose not to use recognized accountants attract much more attention from the IR and VAT people, with the consequent cost & hassle.
I am not a lawyer and dont take any of this as legal advice - get your own! But as I understand it:
If a US business sells to an EU resident, that business will most likely, from a legal point of view, be deemed as having 'availed itself of the (local) jurisdiction', and as such it could probably be sued by the relevant tax authorities in the relevant country. Irrespective of whether it has a physical presence in that country. And if it lost the case, which it most likely would, it could be injuncted preventing all sales and related activity in that country. Oh and dont forget that through treaty obligations any judgement could be enforced in the US against the US business.
Of course, if the US business has a presence within the EU any judgement will be easier to enforce, but I dont think having no presence means you can stick 2 fingers to it.
it could be injuncted preventing all sales and related activity in that country.
But how can they enforce the injunction if they cannot enforce the VAT?
If the EU cannot enforce a non-EU merchant to collect VAT then they cannot enforce an injuction either...
