Internet Marketing And EU VAT 2015 changes to EU VAT and how it affects you Page 1
Internet Marketing And EU VAT Published by: Barry Rodgers & Val Wilson Copyright 2015 Barry Rodgers & Val Wilson. All rights are reserved. No part of this report may be reproduced or transmitted in any form without the written permission of the author. Note: This e-book is optimized for viewing on a computer screen, but it is organized so you can also print it out and assemble it as a book. Since the text is optimized for screen viewing, the type is larger than that in usual printed books. Disclaimer Every effort has been made to make this report as complete and accurate as possible. However, there may be mistakes in typography or content. Also, this report contains information only up to the publishing date. Therefore, this report should be used as a guide not as the ultimate source of VAT on digital goods and services information. The purpose of this report is to educate. The author and publisher does not warrant that the information contained in this report is fully complete and shall not be responsible for any errors or omissions. The author and publisher shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused or alleged to be caused directly or indirectly by this report. The following does not represent legal or financial advice. We are not accountants or lawyers. If you have further concerns about your specific business, you should seek professional counsel from your attorney or accountant. If you do not wish to be bound by the above, please return or delete this report. Page 2
Introduction Let's be blunt. VAT is not the most exciting subject in the world. What this report will teach you will not have you running down the road naked shouting 'Eureka! But, like DCMA, legal disclaimers, privacy policies and all the other things we have to deal with, it is important that you stay on the right side of the law if you want to stay in business. In fact, essential. Better to get your ducks in a row now than 5 years down the line having the tax man break down your door, take your children away and hold them for ransom. Ok, maybe not your children (though we are talking about the tax man here... :)) But your business definitely is at stake here. The authorities have the power to shut you down at any time for any misdemeanor especially one to do with avoiding tax. Keep reading to the end, and I also have a solution that we are using ourselves to totally avoid these new regulations. This is 100% legal and above board, it works for us and it will work for you too. So, let's get started. Page 3
What is VAT? VAT (Value Added Tax) is a sales tax charged on most goods and services by governments in European countries. All businesses supplying the goods and services are obliged to administer and collect this tax and send it to the tax authorities in their own country. Each government sets its own rate (it ranges from??? to???), and each government sets a minimum sales amount above which businesses must charge VAT (this ranges from nil to 81,000). For example, a UK business supplying less than 81,000 of taxable goods and services does not have to register for VAT, so does not have to charge its customers VAT. But an identical business based in Greece that makes any sales at all is obliged to register for and charge VAT, as the Greek threshold is nil. If you were based outside the EU, you could ignore VAT altogether (strictly speaking, this did change in 2003 with the VAT on eservices (VOES) scheme but, without getting into tedious detail, this was easily avoided and never properly enforced). So far, so good. Page 4
So What's Changed? Up until 31 st December 2014, the VAT was charged based on the location of the business supplying the goods or service. So sticking with our UK example, if a VAT registered UK business made sales in another EU country, it would charge VAT at the UK rate (currently 20%). And crucially, if that business was below the UK threshold and not registered for VAT in the UK, then it could make that sale without charging any VAT. So for most micro businesses, VAT could safely be ignored. But from 1 st January 2015, all business selling digital goods and services within the EU must now charge VAT based on the place of supply. So instead of charging VAT based on the seller s location, the EU will now collect VAT based on the customer s location. Not only that, but to really put the boot in, the VAT threshold is now nil for ALL countries. So if you sell as much as one 99c ebook anywhere in the EU, you must be registered for and charge VAT in that country, and send a return and any VAT collected to that country's tax authority. Every quarter. And for any sale in any of the 28 EU countries. And you must collect and keep at least two pieces of non contradictory evidence about your customer to prove that they live where they say they live (for example IP address and billing address). And you have to keep these records for 10 years. Is your head sore yet? Page 5
But I'm not based in the EU, so this does not affect me... Sorry, afraid not. This now applies to ANY business based ANYWHERE in the world which makes as much as one sale to a customer in the EU. So, for example, if you are US business with a website selling downloadable goods, and someone in an EU country buys one of your $7 ebooks, you are now obliged by European law to charge VAT based on where that customer is located. So you have to register your business for VAT in that country, collect two pieces of evidence to prove the buyer is where they say they are, charge VAT at the appropriate rate, do the tax returns... you get the picture. To make it 'simpler' rather than registering separately for VAT in all 28 EU countries, the EU has introduced the VAT MOSS (Mini One Stop Shop) scheme. In brief, this means in the example that our US business only needs to register for VAT and make returns in one EU country, who then submit the VAT returns to the other 27 countries on their behalf. While this is a step in the right direction, remember responsibility for working out the actual VAT rate and amount charged, collecting and keeping the customer's location evidence, invoicing and record keeping all still remain with the seller. As with everything to do with tax, the onus is totally on the seller here. Any non compliance, you are responsible. Page 6
So what are the options? There are three options here. 1. Do nothing and hope you don't get caught 2. Register with VATMOSS and comply with the system 3. Avoid EU VAT altogether by another means Burying your head in the sand and doing nothing is not a sensible solution. Sure, it is possible that you'll go under the radar and it is true that the real purpose of these changes was to stop tax avoidance by the big boys like Amazon and Apple. But the rules are clear. The EU tax authorities have the power to go after anyone who does not comply. If you sell to anyone anywhere in Europe, you owe them money and you can be pretty sure they'll do their best to get it, even if you are only 'small fry'. And the potential costs could be high high enough to blow your smoke out. For example in Denmark and Belgium the penalty is twice the amount of VAT unpaid without any upper capping limit. Other EU member states have upper limit monetary fines of 125,000 (Slovenia); 66,000 (Croatia) and up to 50,000 (Germany). And remember, you have 28 different countries to worry about here. The tax authorities have been behind the curve on digital marketing for years, and this change is the first step to getting their share of the spoils. They have already made clear that: 1) Enforcement will be a priority Page 7
2) They will be using bots and crawlers to find and identify digital sellers - and legislation is currently being strengthened to make this even easier. 3) They will be investing a lot of resources in their international trade relationships to enlist the aid of foreign governments in identifying and prosecuting any perceived tax evasion. So hoping for the best is an option but only if you don't mind running into big trouble ahead. Compliance is an option, but for most micro businesses, it is simply not practical. Unless you have a full system in place, working out exactly where your customers are from and gathering the 2 pieces of non contradictory evidence is all but impossible. And registering for VAT and completing all the necessary paperwork on time every three months, and keeping 10 years of records is a bureaucratic nightmare, even for the most organised of us. So that leaves us with avoiding EU VAT altogether. This seems to be the most attractive option. You could do this by blocking all sales within the EU this is relatively easy to do, but if a significant amount of your sales are in the EU, it would be very costly. It may be a more feasible option for UK sellers (who could still legally sell within the UK and would only have to block the other EU countries, where sales are likely to be low in any case). But for other sellers based outside the EU especially in the US this would mean blocking all UK sales as well, which is likely to be a major market. Alternatively, you could make all your sales through a third party processor who will take responsibility for accounting for the VAT on all your EU sales. Certain platforms act as 'agents' selling the product on your behalf, so Page 8
legally you do not directly sell to the end customer, they do. And so they are responsible for all VAT issues. Clickbank is the biggest platform which does this, but there are others. This is the 'cleanest' solution, and of the options so far, the best solution - but there are drawbacks. Transaction fees are generally higher on these platforms, and so if all your sales go through say, Clickbank, you can lose a big chunk of your profits. Other platforms have the advantage that you get paid for every sale instantly through your Paypal account, rather than having to wait up to 6 weeks for a bulk payment. And if you are using affiliates to help promote your product which we highly recommend platforms with instant payments such as JVZoo or WarriorPlus have well established networks where finding big name affiliates is much easier. This, combined with the extra seller features provided by these platforms, make them much more attractive networks to use. Apart from the issue of EU VAT :( Page 9
The Ultimate Solution As internet marketers, we could see that the best existing solution to this problem was to use a platform such as Clickbank. That way, we could forget about VAT and concentrate on running our business. But that meant we would lose out on all the advantages of using a network like JVZoo, with all the added features that Clickbank simply did not have, and where there was an already established bunch of active affiliates who wanted instant payments and who could generate a lot of sales. So we decided to create our own solution a plugin that would automatically redirect EU traffic to the Clickbank sales page (so avoiding the VAT headache), but allow all non EU traffic to go to the JVZoo sales page. But this created its own problem. Any EU sales made through a JVZoo affiliate link would redirect to Clickbank - meaning the affiliate would lose out on commission. And the number one rule of product vendors? Keep affiliates happy :) So we made a clever tweak to the plugin that means it now creates a unique link for every affiliate, so they get credited for every sale made whether it's through through JVZoo or Clickbank. And it's not limited to JVZoo and Clickbank it can be through any other platform you choose to use. The best of both worlds :) The EU VAT changes are real - don't risk everything by ignoring it. As a digital product vendor, you can shut up shop altogether, block out the EU and lose out on a lot of sales, or keep building your business and stay on the right side of the tax man. That's what all smart marketers are doing, and you can do it too by using WP VAT Buster. Page 10