VAT

[Steve Wood]

Because there has been discussion about VAT on the board recently, I did some research. I sell items online and occassionally have a project client based in the EU, so I thought I should be aware of the rules.

I am USA based, and from my research, I believe I do not have to charge VAT to EU customers. That is for me personally, might be different for someone else or for Alpha Software, Inc. Here are some references, and my logic.

• European Commission - Taxation and Customs: http://ec.europa.eu/taxation_customs...e/index_en.htm
• Ireland specific but contains good summary of EU VAT rules: http://www.revenue.ie/en/tax/vat/lea...-sales-eu.html

The key reason I don't have to charge VAT is that my sales to any ONE EU Member state is and will likely be less than the €35,000 threshold. If my sales were to exceed that threshold I would have to charge VAT for any buyers from THAT ONE EU Member State the following year*.

Now, that is for sales. I read that VAT is to be levied on services too, like professional software development and mentoring. It is possible that I could exceed the €35,000 on one very good project, and I would be required to register with that Member State and charge VAT for that project, and for any sales to members of that Member State, at least for the current year. That seems bazzar to me because that particular EU State would be penalized because I had a good project from their state. If I did charge VAT on the project, technically that would not put me at a disavantage because they would (technically) pay VAT to anyone that built the project. But more than likely, few non-EU developers would think to add VAT to that sale.

Obviously in order to know if I need to pay VAT, I would have to keep track of EU sales by Country (which I do already).

As I studied this, a couple things became clear:

• A similar scheme is coming to North America. Expect to pay USA taxes on Internet sales at some point.
• Most Internet users currently do not pay VAT or any other tax for their online purchases (Google story on Amazon regarding VAT).
• Most non-EU merchants said they would not charge VAT for online sales and the EU had no authority over them. But that was not the focus of my research.
• Modern shopping carts are already geared to handle VAT and other sales tax, including State to State in the USA.
• There are two important proposals on the table: 1) to exempt small merchants, 2) to have a lower rate for downloadable electronic items.

I learned a lot more about VAT but this is the part that affected me the most, and probably most other developers up here.

*I don't know if "year" is calendar or from first taxable event.

[Clipper87]

Re: VAT

Steve,

VAT applies to private endusers. If I as a business owner buy outside of my registered country I do not need to pay VAT on the condition that I can provide a valid VAT number to the supplier. If I buy inside my country I pay VAT but I get it back from the state (that is I can deduct it from the VAT I have charged on my products & services to endusers in my country) VAT = a tax on the value added, so you buy goods, add value & resell them for a higher price and that is taxed. There's a website to check if a VAT nr is valid: http://ec.europa.eu/taxation_customs/vies/lang.do Now if you charge VAT as a US company then how does that VAT money gets to the country where it belongs ? I don't know. The people from esellerate may be able to give you some info on that. See this link https://store2.esellerate.net/store/VATID.htm and play with this esellerate store pretending you're a belgian customer with or without a VAT nr: https://store2.esellerate.net/store/...ageCatalog.htm

[JimDK]

Re: VAT

If you sell to a customer in Denmark, the VAT in applied by customs if sent as a package, so you don't apply VAT that is done in Denmark,.

[cpampas]

Re: VAT

As Frank just said "VAT applies to private endusers". End user is not the company buying the software.

so in case Steve is based in a non EU country and is selling a software service to a company within the EU, he should issue an invoice WITHOUT VAT ( the invoice should explicitely state that the service provider is fiscaly based outside of the EU, but the service to be "consumed" in the EU ), and the client in its own country, would have to pay VAT and in its own next VAT declaration, at the same time deduct that amount (reverse charge).

Just the same as if it was a machine , VAT is calculated upon good's entrance in customs, the VAT amount has to be paid before clearence of the goods , and afterwards deducted ( innocuous to the client and Steve), because the one who ultimately has to pay it is the end user.


Beware of something else :

The EU client should retain a certain amount in concept of income tax that should be paid by Steve.(from 15% to 25%). Income tax that has to be paid to fiscal authorities in the country where Steve is based , without prejudice to any Convention to avoid double taxation between the 2 countries, that should apply in these cases.