Questions You Should Ask NOW If You Sell Online

You sell WordPress themes, plugins, e-books or host sites for clients. You’ve build your business and pay your taxes. You’re a good person, playing by the rules. Are you aware they have changed the rules  already?

What’s coming: the Gist

From January 2015 on, value added tax (VAT) for digital goods and services sold to consumers in the EU must be payed in the country (and according to the country’s VAT rates) where the customer resides, not where the business is registered. The new rule is generally referred to as the EU VAT Place of Supply change.

Before 2015:

• person sells digital products to consumers in EU countries
• pays VAT at home or where business is registered

From 2015 on:

• person sells digital products to consumers in EU countries
• pays VAT in each customer’s country according to their VAT rates

Questions you should ask

In order to keep this actually readable, I’m including just a few notes here that might help you to get started sorting out whether you need to take action at all, and what should be your next steps.

1. I don’t live in Europe. Does the new rule apply to me?

Yes, it does. The EU VAT Place of Supply change applies to everyone selling digital goods or services to consumers in EU countries. Quote from the official EU document:

NON-EU BUSINESSES supplying consumer in the EU (telecoms, broadcasting or electronic services) must charge VAT in the EU country where the customer belongs.

European Commission | Taxation and Customs Union

In other words, it does not matter where you live or where your business is registered. If you’re a U.S. web host you’re just as much in the game as an ambitious theme shop from Switzerland—given your customers are consumers, not businesses themselves. If you sell B2B only, the new rule doesn’t apply to you.

2. What’s the definition of “digital goods or services” here?

See this document, search content for “Annex II”. (Apologies, putting this into a PDF wasn’t my idea.) Quote:

Indicative list of the electornically supplied services referred to in point (K) of article 56(1)

1. Website supply, web-hosting, distance maintenance of programmes and equipment;
2. supply of software and updating thereof;
3. supply of images, text and information and making available of databases;
4. supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;
5. supply of distance teaching.

Freelance WordPress development, too?

To be honest, the first list item has been irritating me: website supply.

Does that mean a freelance WordPress developer has to comply? At least when their client from (another) EU country doesn’t provide a VATIN, thus when they can’t prove their transaction is B2B?

A German lawyer here says: yes, the Place of Supply change applies to web developers, web designers, SEO agencies and the like just as well as to web hosting services. Another article says: no, as long as you provide a unique hands-on service, you’re outside of the scope.

However, if I did freelance web development, I’d probably rather register for MOSS (see question #5).

3.  If I don’t comply, will I be charged?

Think for yourself. If the new rule applies to your business and you choose to ignore it, you’ll be selling something under illegal conditions. In other words: you’ll become a criminal under EU law—with all the theoretically possible implications i.e. for traveling to Europe.

Whether or not you’ll be gone after by a mob of pettifoggers who’ll hunt you down and drag you to court, is up to your imagination. However, there might be countries, particularly in Central Europe, where that scenario already is a disturbingly real one.

4. Is there a WordPress plugin for it? (aka the tech part)

Sure, there are! Brave developers around the globe have been tearing their hair out to deliver technical solutions in time.

There are a couple of solutions for WooCommerce. Stripe, PayPal and other payment providers may have you covered already, check their help desks.

From a coding perspective, there seem to be basically two main approaches to deal with the new rule UX-wise:

• Absorb the dynamic VAT portion included in your consumer price by just fixating the price and displaying its tax included according to the customer’s billing country only during checkout.
• Don’t reveal any prices whatsoever before the customer has entered/selected a billing country.

@rachelandrew so ultimately: tell me where you're from, *then* I'll show you a price. UX tears everywhere!

— @rem (@rem) December 14, 2014

5. What do I need to do now? (aka the non-tech part)

Register for MOSS. The so called Mini One Stop Shop (PDF) is your administrative gateway to paying those VATs where they belong in the future. Call your local finance authority, taxation office, IRO, whatever and ask where and how you can register for MOSS

Talk to a lawyer when in doubt, especially when a temporary sales stop to EU countries is not an option for your business.

Evaluate for yourself whether you should stop selling to EU countries temporarily from January 1st 2015 for as long as you haven’t registered for MOSS and you’re not absolutely clear what’s next.

6. Where can I find more info on the new EU VAT rule for 2015?

Start with this official page: European Commission › Taxation and Customs Union › How VAT works › Telecommunications, broadcasting & electronic services › New rules from 2015

Move on with Rachel Andrew’s Github Repo on the topic, including this blog post and FAQ.

TL;DR

The EU has issued a new VAT rule that will affect thousands of digital businesses from January 1st 2015 on. Get yourself educated and find out whether you need to do register for MOSS and implement new features in your online store.