If you've been reading along for a while, you will have read about the EU VAT on my blog. If you have no clue what I'm talking about now, let me give you the TL;DR version of the whole thing.
a business sells something to a customer, the amount paid includes a
certain tax that we'll call the VAT (for Value Added Tax. The German
word for it is Mehrwertsteuer*, and every EU country has their own term
for it, but it functions just the same everywhere). The business then
sends that tax money on to the state, who grins and takes it. You must
pay VAT if your business is over a certain threshold of turnover (that
is the money taken in and spent added up - so if you spend 20 € and get
20 €, your turnover is 40 €. Your winnings, however, is zero, so high
turnover does not necessarily mean you're getting rich.); the threshold
varies from country to country.
VAT is everywhere and
it's on everything you buy, every day, everywhere. It thus shouldn't
surprise you that the income from VAT makes for a huge chunk of the
income that any EU country gets.** This tax is thus very important to
any EU country. Accordingly, they feel rather strongly about their
money, and they will afford you little slack for transgressions.
much VAT is charged, however, and which rates apply to what kinds of
goods, differs from country to country and is not always
straightforward, or easy to understand. For instance, when I sell a
book, I have to charge 7% VAT instead of 19%, because books have the
reduced German VAT. When I get paid my royalty fees from my publishing
house, however, they are charged at 19% VAT even though all that money
is coming from selling books charged at 7% VAT!
still with me? (I hope so!) Here's where it gets interesting. Each
member state of the EU has this system, with their own issues and
confusions about what gets charged what, and they all have different
rates of VAT - as many as five rates in a single country, and 75 rates
altogether in the 28 countries. There's a list online (German version here),
so if you like numbers or would like to see how complicated the
framework of all this is, go take a look. I'll wait here. Make sure you
scroll down to at least page four to get an impression. Heck, just
scroll through the whole thing once, you don't even need to read it to
see how frazzled this all is.
Here's where it gets
interesting. The rates. When you live in a country that charges high
VAT, your customer effectively pays more money to you, so your prices
have to be higher than they would need to be in a low-VAT country. That
is the reason Amazon has its business centre in Luxembourg - lowest rate
in the EU.
Essentially, the big players go where they
don't pay as much VAT, helping them outprice the competition. This has
two effects: firstly, the competition, especially local and small
businesses, can't match that pricing and suffer, or have to fold.
Secondly, the low-VAT state gets a lot of VAT money even though most of
the goods are shipped out of the country.
Remember how I said that VAT is not where countries have a relaxed attitude?
There's money to be had, and the EU Commission realised that there
might be some skew to the system. Enter a plan to make it all different.
What if the business has to pay the VAT to the country they ship the
goods to? Wouldn't that be fairer all around? The company pays VAT
according to where they make their turnover, and the corresponding
country gets the money. The customer does not notice any changes and
always pays the same VAT rates at their home country rules (which few
customers probably ever thought about, or care about).
good? Well. That's what the EU Commission thought, and they wrote a new
law, and that would start with applying the new system (pay VAT based
on the buyer's country) to digital goods and services - mp3s, ebooks,
software, games, anything that is digital and downloaded via the 'Net.
This rule came into force in January 2015.
countless small businesses have closed down, and many more startup plans
have been laid into a shallow grave. Why? The rules are in effect for
everyone, from the first penny or cent of turnover you have.
I would sell a 1€ knitting pattern on pdf to one person in the UK in
2015, I'd be forced to register for VAT in the UK, do the VAT accounting
(probably four times, once for every quarter of the year) and send the
money over (which includes paying for any bank charges for currency
conversion). For one single euro. Can you believe that? There's a
threshold under which you have to pay no VAT in most countries for a
reason, but there is no threshold at all for the new EU VAT. There's a
thing called the Mini One-Stop Shop for small businesses where you can
register once for all the EU countries, and which is supposed to make
things easier, but it's not making it much easier, and it's not working
really reliably yet. (This legislation is in effect since January, by
the way. It's not working reliably yet, about 9 months in. That's enough
time to make a human baby.)
So many businesses folded
because they could not invest the time and money to make sure they can
work with the new system, or they did not want to face this wall of
bureaucracy that can bite you in the ass, hard, if you mess up. (That
thing about no slack being cut.)
Now, for those who
did not want to throw in the towel yet, the rules are so hard to follow
that even the Big Players have huge trouble implementing it, and they
have teams of software people and accounting people and law people.
Small, single entrepreneurs? This regulation adds so much paperwork,
consumes so much time, and costs so much money that trying to comply can
make a business fold. (You can find out more about the impact, and the problems, here.)
and by the way, this is in effect world-wide. So if an US company (not
in the EU) sells me a knitting pattern download, they have to charge me
19% VAT and send that VAT over to good ol' Germany, who will grin and
all, though. An extension to all goods and services is on the slate for
2016. All goods and services. So if you'd like to buy a spindle in the
US? May well happen that the seller refuses to sell to you, because of
the VAT paperwork that would entail. Things like this are already
happening - sellers are blocking anyone from the EU and refuse to sell
to them. (Even EU businesses though there are different rules for this,
and they could sell to them no problem.)
This is, as you will hopefully agree, a Bad Thing - for many, many businesses as small as my own, or also quite a bit larger. It's impossible to comply with the legislation as it stands at the moment - but there's been a lot of complaints, and the EU commission is finally aware of the issues, and willing to do something against it, so there is still hope that this mess may be resolved.
And you can help - though in the interest of not boring you to tears with an insanely long blog post that nobody ever wants to read to the end, I'll tell you how tomorrow...
*Which lends itself wonderfully to being called "Märchensteuer",
literally "fairy tale tax". The one little bit of humour this whole mess
affords me is thinking "fairy tale tax" every time I say or write MwSt,
or VAT. Also helps hoping for a fairy-tale-like happy ending.
** I had a phone call on Friday about this topic, and I think I remember being told "the biggest", but I don't want to misquote.