How will you be handling the new EU VAT rules?


(Leland Fiegel) #1

Read this if you haven’t already: https://poststatus.com/wordpress-vat-eu/

Even if you think the rules don’t apply to you being a non-EU resident, they very well could.

It’s mentioned in the article that’s it’s possible for the IRS to enforce it on the EU’s behalf, but that could just be a scare tactic to get people to buy updated tax compliance software.

Considering they barely enforce state sales taxes for digital goods, I have a hard time believing they would do this for EU countries as well. But who knows.

If you’re in the US, you have a few options:

  • Comply to be on the “safe side” despite the steep burden. There’s a lot of time/cost involved in the additional required accounting. Plus getting things set up on the technical side. Again, taking time and money.

  • Reverse boycott by not allowing EU customers to purchase from you. This is an unfortunate, but possibly the most straightforward solution for small shops that don’t have the time or patience to deal with it.

Addons for ecommerce solutions like EDD have already sprung up to prevent EU customers from buying on your site. WPChat member @MacManX has some additional thoughts in his review of the plugin.

If you’re in the EU, it seems like you have only one option: comply or else face steep fines. That or just closing up shop, which unfortunately sounds like many businesses are considering.

I can’t even begin to describe how much stuff like this saddens me. Buyers of digital products in the EU lose by not being able to buy products that they want, or having to pay more than their budget allows after the VAT.

While ecommerce shop owners have tough, and potentially costly decisions to make whether it wants to serve EU customers or not.

What are your thoughts?


(Ante Sepic) #2

This is a really big deal and I still can’t believe how uninformed people in the government that passed this bill are. I mean, seriously, you have to be plain ignorant to approve of this law.

Unfortunately, complaints and petitions did not seem to affect anything or anyone.

Right now we are selling on Envato marketplace which fortunately handles this for us.


(Leland Fiegel) #3

I was curious about this but couldn’t find any specific announcement from them about it. Do you know if Envato staff discussed this anywhere?


(Ante Sepic) #4

There is some info here:


as well as (lenghty) forum discussion here:


and here:


(Nate Wright) #5

I just registered and tested my EDD shop for compliance in about an hour. It was way way way easier than I expected so I’m kind of wondering if the reporting is going to be a total nightmare or if I’m missing something. If not, and the integration really is this easy, then I feel embarrassed for all of my bitching and moaning over the last few months.

A few people asked for a guide so I’m going to dump a bare-bones how-to here until I can write up something proper. But I actually wanted to put this up quickly before I step away for the weekend to show people that compliance might not actually be as hard as we think, if there is a service/product solving the main problem of determining and adding the taxes for you.

How to get your shop compliant with EDD + Taxamo

  • Register for VAT MOSS in the UK.
  • Set up Taxamo
  • Set up EDD Taxamo addon
  • Pray you get your VAT number in a couple weeks.

Register for VAT in the UK

The hardest thing in the whole process was actually finding the appropriate registration form on the HMRC website. This section is only for shops under the VAT threshold. If you’re over the VAT threshold hire an account to sign you up! :smile:

If you are in the UK:

  • Register for VAT. This is the link they provided but I found it a f*ing nightmare to figure out where to go or how to proceed from that link. If you have trouble, go straight to the general login then proceed as follows.

Then you’re off filling out the form with all the usual stuff.

  • If you are below the VAT threshold, there is a special category that will allow you to only pay VAT on non-UK purchases. You have to select this during registration when you hit that part where it’s like “search for the kind of business you are”.

    when prompted to search for Business Activity, enter Digital Services and select ‘Supplies of Digital Services’ (below UK VAT threshold) under MOSS arrangements

If you are from outside the UK but want to pay through the UK’s MOSS setup so you pay all taxes owed to one authority:

  • Well, you need to register with HMRC. But I can’t help or provide screenshots because I’m registered in the UK. But I’m pretty sure you can do this and pay through their one-stop-shop (MOSS = Mini One Stop Shop). You’ll need an account which I think you can get via the normal login page.
  • I don’t know what details they’ll want from you, but know that Sole Proprietor is probably what you want if you’re the owner-operator and don’t have employees.

Sign up for Taxamo

They’re onboarding is awesome. I got API keys before I even gave them an email address!

Set up EDD Taxamo plugin extension

Ok, I hope you all know how to install and activate the EDD+Taxamo plugin on your site. Major props to @rhyswhynne for this! Once activated go to EDD > Settings > Taxes.

Save and test! It’s a bit rough but seems to work.

To actually get going with it, you’ll eventually need to get your VAT number, add that to Taxamo, enter all your business details and sign up for a payment plan there. Then get your production keys and do it all over again on your live server!


(Giulio) #6

On the more technical side of this problem, there is a blog post that was published last December by the Woocommerce team that talked about these changes and how to configure Woocommerce to comply.

This post led to a long discussion which in my opinion is the most interesting part. If you have time I think that it worth reading it, as it sheds some light about European legislation.

In short, there are two problems:

  1. In Europe the price advertised to consumers must always be VAT included
  2. The price that you advertise must be final. Once the client click on the buy button you cannot change the price anymore at the checkout to account for the VAT

The problem is that VAT can be different across European countries. If you connect from Germany and at the checkout enter a French billing address, and the VAT is different, if you change the price to account for the different VAT you violate the law.

I proposed a solution to this problem but I don’t think that the developers understood my proposal.


(Leland Fiegel) #7

This is a pretty major point if I’m understanding this correctly.

Unless the buyer has some sort of tracking cookie from a past purchase, how would it be possible to know their billing address before they get to check out? Location detection wouldn’t necessarily be effective if they were traveling outside of the country in their billing address.

And even cookies wouldn’t be reliable for privacy-conscious customers (who use private browsing windows, clear their cookies regularly, etc., unless you get ISPs on board with “supercookies” similar to what Verizon Wireless does, although I wouldn’t be surprised if this is a huge privacy law violation in several EU countries.

It’s almost as if the makers of this law either 1) have no idea how the technology behind ecommerce sites work and/or 2) purposely made this law so absurdly complex that it’s virtually impossible to comply, just so they can hit you with fines later.


#8

Hi, interesting post.

With VAT, if you are the supplier, selling on your own web site, then there are rules that are simple and you use then to determine the correct amount of tax to apply: if the buyer is in France it’s 20%, if buyer is in Germany 19.5% and so on. It’s also a requirement of the VAT legislation to keep some evidence to justify why you determined that the buyer is in France not Germany. This is not rocket science and this plugin www.lyquidity.com/wpstore/ does this for EDD users at a one off cost of £59, so no taking a percentage of your profits. There’s also videos to help http://youtu.be/e9eLVo9WMiw

Sure, if you are a hotel or a cruise ship or are selling through an agent there are additional things to be concerned about. But if you are selling a digital service on your own site it is straight forward.
Each quarter (or monthly if you prefer) you will submit a form to declare your VAT liability and initiate a wire transfer to hand over the VAT you have collected. The MOSS report required by HMRC is a
spreadsheet (formatted using a template they provide) with a line to declare the net sales for each country (two if you sell real goods and a digital service of some kind).

So each quarter your responsibility is to submit a formatted spreadsheet (Microsoft Office and Open Office formats are supported) that contains a handful of numbers.

There’s also the opportunity for US customers to NOT sell to the EU and again this plugin handles this scenario.

The purpose of this response is to try to make you aware that complying with the rules is not difficult.

I’d like to point out for clarity that I work for Lyquidity, which is the company that sells this product.


(Giulio) #9

Hi @beth you are right in what you are saying but the problem is that the system to detect user location is not 100% reliable, and even when it detect the location correctly, people travel. Someone could connect from a hotel or other place in a country, make a purchase and enter a billing address of another country, thus forcing the site to change the final price if the VAT is different. However, changing the final price is against the law, and makes all of this so difficult to manage.

I proposed a solution to this problem that could save from many headaches in my opinion but it will be hardly adopted because it would force to change the way prices are calculated, just for European countries. The website show a price VAT included that is the same across all Europe, no matter what country. The VAT is then calculated correctly at the end of the checkout process when the billing address is entered, and charged to the merchant. In this way, the profit on every sale could change depending on the VAT of each country but the law is never violated because the price to the public is always the same.

Example: price $120
Sale made in Germany with VAT 20%: the merchant pays $20 VAT and makes $100
Sale made in France with VAT 15%: the merchant pays $15.50 VAT (more or less) and makes $104.50

Would that make sense?


#10

Hi Daprela, I think your understanding of the regulations is not correct. It is true that the IP address, which is the only tool a web site is able to use to determine the location of a visitor, is
not 100% accurate though it is pretty good and in over 99.999% of cases will be correct. However it does not matter. The rules only require that you collect the evidence available, what the regulations call “commercially relevant information” (see Article 24[f] of the EU VAT Directive 2006).

The IP address of a buyer is one piece of evidence explicitly permitted in by the regulations. The
declared billing address of the buyer is another. If the country of both of these pieces of evidence do not agree, a site is permitted to ask the user to ‘self-certify’ that the billing address is the correct address to use.

This is going to happen often in some locations in Europe. If a buyer lives in Tournai, Belgium but works 20km away in Lille, France then purchases are likely to be cross-border regularly which is why the regulations allow for this scenario.

Of course the buyer may lie about their location. Again the regulations allow for this and state that a company cannot be held liable for deception on the part of the buyer unless they would reasonably know otherwise. The regulations specifically allow for a passenger on a cruise or a guest at a hotel. In these scenarios the ship operator or hotel manager knows exactly where the buyer is located.

However, it is not reasonable for a web site selling software or an e-book to know whether the declared address of the buyer is correct or not. The obligation of the web site is only to apply VAT at the correct rate based on the available information (usually the billing address).

Even in the case of the ship passenger or the hotel guest, the current location of the person is only
relevant for certain purchases. The regulations give the example of someone staying at a hotel using a kiosk provided by the hotel to access the internet. The VAT rate applied to the purchase of the right to use the kiosk should be based on the physical location of the user because the hotel
knows that location (the location of the kiosk). However VAT rate applied to any purchase of a digital service made by the user of the kiosk should be the location of the kiosk user’s “permanent residence”.

<<thus forcing the site to change the final price if the VAT is different. However, changing the final
price is against the law, and makes all of this so difficult to manage>>

This is absolutely not correct. A web site MUST charge VAT at the rate that applies in the
buyer’s declared country of consumption. If I am visiting Luxembourg where the VAT rate on digital services is 17% and I buy a digital service and I enter my home address in the UK then the site MUST charge 20%. The price I see when I visit the site may include VAT at the rate of the country I
am in when I visit the site (Luxembourg). The site should make clear the VAT rate applied. However the “final” price must include VAT at the rate in the declared country of consumption. It is not illegal to change the price to reflect the correct rate of VAT. Where have you read that?

Just for the record, the VAT rate for digital goods in Germany and France is 19.5% and 20% respectively.

It may be that you want to offer a fixed price for a digital service, an e-book maybe and earn different amounts based on the tax you must charge. That is OK and most e-commerce packages
allow you to enter a price that includes tax so the price to the end user will always be the same. But the regulations do not demand that you be so noble.


(Giulio) #11

@beth thank you for your thorough answer, I am definitely happy that you took the time to explain in detail and clarify things.

As many people here, I don’t have time to study the laws in detail, so I revert to the ‘better safe than sorry’ principle when I’m not totally sure what I must do.


#12

Hi Daprela, no problem, I’m glad the information is helpful.

Best regards


#13

As an update about dealing with the VAT legislation and I wanted to update you about another way we are helping businesses - this time dealing with the ECSL VAT submissions to HMRC.

We have released another plugin, which is free, ( https://wordpress.org/plugins/vat-ecsl/ ) which will create submissions for EC Sales List (ECSL) returns (VAT101) to be sent directly to HMRC from Easy Digital Downloads & Woo Commerce sales records.

Each quarter, or even month, UK businesses must submit to the UK tax authority (HMRC) an EC Sales List to document sales made to businesses in other EU member states. This plugin integrates with Easy Digital Downloads and/or Woo Commerce so it is able retrieve relevant sales records from which to create the quarterly (or monthly) return.

This plugin is free to download and you will be able to use it to create and test EC Sales List submissions. To submit returns directly to HMRC you will need to purchase a credit from our web site: £5 for a single submission.

There’s more information http://goo.gl/4rgaVF

I hope you find this information useful.


(Russell Jamieson) #14

Leland,

Many thanks for starting this very interesting and thought provoking discussion.

To answer your question, I am handling the EU VAT rules by structuring my product offering so the rules are not applicable and hence my systems are unchanged.

I had hoped that this ill-conceived tax law which was intended to stop large corporates such as Amazon and Google running all their Sales tax through low VAT countries might be postponed at the 11th hour. This law makes the similar piece of nonsense that is the Cookie Law look good.

Setting an eligibility threshold at 0.5 million Euros would have been a good decision. This has some impact on revenue but a massive reduction in cost of compliance. If only the people who make laws knew something about small businesses…

One of the EU’s goal is to promote trade and this law has the opposite effect of reducing trade by pushing up compliance costs for businesses. Many micro business will simply not sell to the EU as it is no longer financially viable to do so.

Anyway, back to my solution.

One aspect of the law is to do with applicability. The tax is for digital services delivered without human intervention. See the definition of Electronically supplied

My current products do not fall foul of the tax as they have a significant manual component: they consist of a mix of self-served online pre-recorded training courses and monthly live webinars for reviews and Q&A. The manual component means the tax is not applicable.

I also have written a few premium WordPress plugins - they are GPL licensed and hence in line with standard GPL practices I charge for support and updates. The support is a manual activity and hence the tax does not apply.

At some point later this year I plan to have some fully automated SaaS app running in the cloud so will likely have some taxable supplies (assuming the law has not been canned or postponed by then). My delivery platform does not use WooCommerce or EDD so I will be faced with a homespun solution using taxamo.js.

Here’s hoping a tax eligibility threshold is introduced before I launch :smile:.

If you think this tax law sucks (and you feel generous and you would like to save me from writing some nasty and no doubt buggy tax integration JavaScript) and then please sign the petition to try and get the tax legislation amended so it is better fit for purpose. Many Thanks


(Leland Fiegel) #15

Really interesting info, @russell. I wasn’t aware of this.

A few things stand out to me.

I don’t get what the difference between the two is. A “manual” email isn’t considered electronically supplied (and therefore not covered) but an automated one is? It’s like they’re trying to punish businesses for being efficient.

“Online course consisting of pre-recorded videos and downloadable pdfs plus support from a live tutor”

How do they define “live tutor”? Is answering support questions via email considered live tutoring? Or do you have to be on a Skype video call?


(Russell Jamieson) #16

Re: “It’s like they’re trying to punish businesses for being efficient.” - they would not see it as punishing as such, they just want some tax so they can share in the success of a business that has decided to automate.

Those are the rules. My product exactly fits the following exclusion:

“Online course consisting of pre-recorded videos and downloadable pdfs plus support from a live tutor”

And I have a pulse so am a live tutor!

Re: “Is answering support questions via email considered live tutoring?”

I do not know for sure whether email support is considered “live tutoring” - I would say yes as the email responses are not automated, they are manually created and sent personally to the buyer. Maybe not in the real time but this assertion seems to be consistent with the manual emailing of PDFs not falling under the new laws.

Remember, the rules are the rules. If they needed to make complete sense then they would not be imposed in the first place for the reasons I stated in an earlier post. It is poorly constructed legislation at multiple levels.

Fortunately, for now, I do not need to worry about the tax rate to apply to an Italian who is moving residence to Germany who buys my €19 product in a train passing through Switzerland using the credit card of his Belgian partner who temporary lives in Brussels and whose credit card is registered in her permanent residence in Luxembourg.


#17

Hi, I know I’ve mentioned how we can help with regard to ECSL, but we’ve now released the final in a series of plugins to cover all aspects of VAT and reporting to help businesses comply.

· VAT-MOSS plugin - so you can generate your VAT-MOSS reports automatically. No later than April 20th we will need to have submitted a MOSS return to our tax authority to document the VAT collected on sales to EU consumers. We have been in contact with all EU member states and currently the plugin will generate the MOSS report in the required upload format of 10 EU member states with new ones being added every week. Even if the plugin doesn’t support the format of your country’s tax authority today it will generate a MOSS report so you are able to type in the return you must complete before April 20th. You can find out more about the VAT-MOSS plugin on our web site or on the WordPress.org site.

Once you have uploaded your first MOSS return, the tax authorities in any one of the EU member states may choose to audit your returns. If they decide to request an audit you will need to provide
details of sales to EU consumers in an ‘audit file’. Lead by the EC commission, the tax authorities have agreed a standard format for the audit file (SAF). We have produced a plugin which you will be able to use to generate an audit file of your EDD sales records that you will be able to send.

· SAF-MOSS plugin – in case you are audited. This plug-in available on the WordPress.org site and from our website.

So hopefully these now let businesses get on with doing what they do best - selling.


(Leland Fiegel) #18

Sounds like an exemption to reduce burden on small business is being discussed: http://www.europeanvoice.com/article/commission-rethinks-vat-on-digital-services/


(Nate Wright) #19

Just made my first quarterly payment in the UK. Taxamo gave me a nicely formatted spreadsheet with my details which fit into a HMRC-provided template. Unfortunately, HMRC refused to recognize my VAT number so I had to make the return manually anyway. That was pretty painless, since it’s broken down by country (you don’t need to enter every payment, just each country’s totals, which Taxamo provides).

Other than HMRC being a bit of a twat and not recognizing my number, then completely ignoring my request for help for 2 weeks, it was all pretty painless.


(Collins Agbonghama) #20

There are payment services such as Paddle that abstract away the pain of dealing with VAT. If you use EDD, I built a paddle gateway.