There's very little discussion about the EU's rules on supply of digital services and VAT MOSS.
Considering the hassle, unavoidable expense, and boredom surrounding the beautiful mess that is the EU's VAT MOSS, I'm surprised that more noise isn't made in the online communities I'm part of.
Perhaps it's a bold claim, but I'm suspicious that a large majority of small startups simply ignore the EU's rules on B2C place of supply and VAT.
Not wanting to point the finger at anyone specifically, but looking back through my last month's invoices from overseas companies, none bar two of them either checked whether I was a bona-fide business or charged the correct VAT.
As regards the expectation from the EU on compliance with the B2C VAT rules, I think it is unreasonable almost to the point of lunacy.
I'm interested to hear how you handle the place of supply rules, and how it's impacted your business.
We've been fully compliant at EmailOctopus since pretty early on. Admittedly we didn't know about the regulation until about 6 months in when it was mentioned at a meet-up. Following that we quickly implemented VATMOSS and back-paid what was required.
We built our own functionality in-house, adding at VATMOSS modal to find out whether they were a consumer/business and collecting the VAT number and validating where required.
We chose to do that ourselves, because for a weeks work we saved a huge amount compared to forever spending on a 3rd party and we now understand the legislation fully, which is important.
If you are looking at doing it, Stripe now makes it easier than ever with some inbuilt tools of their own, too.
Thanks for your reply Thomas. Your story about launching without realising the EU's rules is probably repeated by startups all over the world.
Interesting to read that you built your own solution. Do you only sell to VAT registered businesses? If you sell to consumers/sole traders as well, how do you pull in the correct VAT rates?
You mention that Stripe has improved their functionality in this regard: is this what you are referring to?
I've evaluated Chargebee as a solution, their service looks good at £89/month. To be fair I should say that they have many more features besides their EU VAT implementation.
We sell to both VAT registered business and consumers, so we cover both avenues. We use a free tax rate API by https://vatlayer.com/ to pull in the rates and validate the VAT numbers. If rates need applying, we look at both card issuing country and billing location (as from memory VATMOSS requires 2 pieces of evidence) to issue the correct rates.
Stripe now offers the ability to create tax rates within its platform and validate VAT numbers, so you don't need this 3rd party API. You just need to create the functionality to decide if/when those rates are applied. https://stripe.com/docs/billing/taxes/tax-rates
It wouldn't surprise me if Stripe further improved their functionality in the coming months, as this has been a recent addition.
We opted against Chargebee as whilst it was quite attractive early on, long term it looked like it was going to cost and as I said, the implementation wasn't that difficult for billing alone. The old classic build/buy quandary. I should say, I do have friends using Chargebee for their SaaS and they seem to like using it.
Vatlayer! What a great thing! Thanks!
Great info, very helpful. I'll dig into the Stripe docs and get to grips with the logic.
Stripe are very supportive of startups, so I suppose reducing the friction in this process would make complete sense.
It's hard to be compliant. The ones who care about it are probably outsourcing to Gumroad, Paddle, or FastSpring or offloading some of the work to things like Quaderno.
This headache has recently made me give up on a project I've been working on for a long time. It's arguably too complex to keep track of for small biz.
Thank-you for your reply Marcus.
Your situation succinctly describes the madness of this legislation. The EU sold this idea as a way of providing a level playing field: to stop big businesses from having an unfair advantage by setting up in territories with preferential tax rates.
The reality is that the new rules are anti-competitive. Many self-funded startups simply find the only feasible route to market is to rely on an existing marketplace or platform.
For example, a 3D artist may now abandon plans to sell directly through her website and list everything on Envato's marketplace instead. Still others may not even get off the ground at all.
With the VAT rules affecting behaviour in this way, it strikes me that the EU's rules put larger/established businesses at an advantage, effectively doing the opposite of what they intended.
The EU introduced a threshold for sales under €10k / year I believe- don't let that hold you back from launching/shipping
Thanks for the tip—my idea involved not just my business but was a marketplace style SaaS where much of the value came from simplifying all that admin headache. It was a bit too much for what I want to build, so just tossing that idea, and I'll definitely pursue other ideas. :)
Here's a reference to the €10K threshold that @NotoriousBOC mentioned (link).
Paddle have quite a good article that summarises the SaaS tax situation
I am based out fo the UK and using them for Worked Today and have no real regrets. I loose a small percentage of my income but it avoided a lot of administration and development costs so I am happy.
Thank-you for your reply Andy. Worked Today looks awesome! The aesthetic of your UI is fantastic.
People keep mentioning Paddle. How is their pricing structured? I couldn't find any information on their website.
Oh weird, they seem to have hidden the pricing info. That's not so cool of them. It was self-service when I signed up a couple of months back.
It's around a ~5% cut I think. Note though that this includes the card handling fees which are often a couple of percent at least and you'll save time and money on accounting / admin so it's a pretty decent deal I think.
Glad you are digging the Worked Today design. Someone described it as "Friendly Brutalism" the other day and that pretty much made my day.
It more or less means I'm only selling through gumroad and that's it. I think it all started in California and I thought it was sooooo dumb at the time but it seems stupidity always spreads very fast.
As things are evolving, we can already imagine a future where each and every internet seller is required to open an account with each and every "tax authority" in the entire world and having to handle remittance in various currencies and fill up dissimilar paperwork for each, as well as keep up with any and all tax-related changes to rates or procedures that occurs anywhere on this planet. Sounds like like a great plan, no? (Rolling eyes)
One could see this as the opportunity of a lifetime to create an automated system of compliance. Sadly I've got the software know-how but I'm way too small $$$$ to tackle this ;)
Wow, yeah, Quaderno are probably having a field trip with this whole situation.
Our company is not based in the EU. We must abide by American laws where we're based, so we have no interest in complying with whatever latest thing the EU has come up with. If we had to comply with the rules of every single jurisdiction in the world, we probably couldn't do anything, could we?
That's probably why you're not seeing a lot of discussion about it outside of EU circles.
I don't know what point was trying to be made, but we have many brothers and sisters here on IH who have businesses in the EU. They must consider EU tax regulation. No need to scoff at that concern.
I'm sure there was no ill intent—I just wanted to point out that I found the comment a bit standoffish.
My apologies if it came across that way - I realize EU citizens have to deal with this, so it wasn't meant to minimize that. However I was reacting to OP's question of why there seems to be little discussion about the subject. And I do think the reality of it is that, actually very few people outside the EU actually lose sleep about it which is why it's not often brought up by the rest of the world. Sorry about that confusion, it's my bad!
All good! As I suspected, most people never have ill intentions. It's probably true that EU tax regulation isn't relevant to the majority of IH:ers.
It's probably not relevant to the majority of us, but I do sympathize with you guys. Most worrisome (even more than the VAT rules) seems to be the new subscription payment rules that are supposed to take effect soon. I can imagine that stifles a lot of startups or consultancies who operate on recurring payments.
Thanks for your reply Gil. I completely understand your position, and agree that their behaviour stifles productivity, particularly at an early stage.
As regards how they plan to enforce it, anyone's guess seems good.
In the UK the process is that a company would need to be audited by HMRC (the UK government tax office) and then if found to be failing to collect appropriate tax, the company would have to pay the VAT due in arrears plus a fine.
How on earth they plan to do this globally, I really don't know. It would require cooperation from the treasuries of individual countries all over the globe.
In that scenario I can imagine countries refusing to cooperate and becoming "VAT admin havens". At this point we're exactly back to where the regulation started: preventing companies using a country's preferential rules to their advantage.
I'm afraid you might be very mistaken. US companies are definitely falling under EU juridiction when selling to a EU customer, as far as I understand how law works. I'll leave the final debate to lawyers, but I'm pretty sure of this. It's like traveling to another country: you fall under that country's laws, US citizen or not. Just my two cents. I wish it weren't the case though...
The EU has no more jurisdiction over online commerce in the US than China has jurisdiction over online news in Europe. It comes down to a matter of treaties and cooperation from the government with jurisdiction.
What the EU could do is block its residents from parts of the internet that don't conform to its regulations. This is exactly what China does. There would probably be an uproar if European voters suddenly lost access to most US sites, but on the other hand, most companies want access to as many markets as possible. It's basically a game of chicken and the EU has a huge car.
I didn't know this! Apparently non-EU businesses are required to collect VAT... read about it here 😰
That's very interesting. However I don't know how this is enforceable or even realistic. We don't market specifically to the EU, not even sure if we have any EU clients at the moment, but I can't imagine that the EU has the ability to track down every digital-focused company in the world and make them pay VAT. I wouldn't even know where to start collecting it.
I use Paddle for https://www.checkbot.io/ (and considered Gumroad and FastSpring as well) mainly because I don't want to have to worry about EU VAT.
I hesitated at the time because I had this feeling others didn't really worry about EU VAT and the fees per sale are a little higher but I don't regret it at all.
It's not even only the EU. I know for sure California as the same dumb law where a Canadian company, for example, selling to a California customer, is expected to charge and remit taxes to California, thus having to open an account etc etc with California tax authorities. I think they invented this whole stupid concept, actually, many years ago. I never thought this would get replicated across the world though. There are other US states with the same requirement.