Ask HN: Does your (non EU) company charge VAT to European customers?

[jibjab]

According to the 'VAT on e-Services' directive of the European Union companies that are not based in the EU companies should charge VAT on sales of "electronically supplied services" to European customers. This directive was put in place so "that both non-EU suppliers and EU suppliers are subject to the same VAT rules when they are providing electronic services to EU customers." (http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/e-services/article_1610_en.htm#a1)

However, I have never seen non-EU based companies do this. Why is that? Is this directive unenforced / ignored / unknown??

[patio11]

No, I don't.

I'm of two minds on this:

1) I think I'm in compliance, since most EU nations appear to have a floor for sales numbers beneath which you don't have to remit VAT payments. I am nowhere near any of the floors I am aware of.

2) Hypothetically supposing that that exception was eliminated, it does not strike me as obvious that a country on the other side of the world which I have never visited has the moral right to make their revenue problems into my development to-do list for tomorrow. I understand that this gives me a theoretical pricing advantage against EU firms, but seeing as how they have a vote on EU taxation policies and I do not, that should ideally not be too difficult to correct. If they can't convince the EU polity that their international competitiveness is more important than all the things the EU buys with their tax money, well, still not seeing why that is my problem.

[_delirium]

On #2, the traditional argument was a bit clearer when it was a world of mainly physical goods. The argument was that you could ignore the EU all you wanted as long as you didn't do business there, but if you chose to commercially import goods into their countries (whether by commercial freight or by mailing packages), then you'd have an obligation to look into what the law surrounding imports was. And of course if you flew to the country and started providing services in person, you'd have an obligation to obey their laws.

But now that you can provide services remotely, the obligations are indeed less clear.

[jibjab]

Thanks for your reply.

Regarding #1: True, it seems that there are some countries like the UK [1] have thresholds, but others don't seem to have any (eg Ireland [2]). No matter if they exist or not, there are still companies that have large EU based turnover (Github, 37signals), and they too don't charge VAT.

Regarding #2: I agree. It's not that I want to convince anyone to start charging VAT. I'm simply trying to understand why this directive exists and why no one seems to care :-).

[1] http://www.hmrc.gov.uk/vat/start/register/when-to-register.h...

[2] "(g) A non-established person supplying taxable goods or services in the State is obliged to register and account for VAT irrespective of the level of turnover." http://www.revenue.ie/en/tax/vat/registration/index.html#reg...

[jcr]

You might also want to read up on the "Double Irish" and "Dutch Sandwich" approaches to dodging EU taxation. But if you're at work, searching those phrases without safe search might be a bit interesting... ;)

http://www.businessweek.com/magazine/content/10_44/b42010431...

[rmc]

Ireland has a low corporation tax 12½%, to avail of that you need to incorporate an Irish company. This has nothing to do with Ireland's VAT rate (of about 21%)

[jcr]

I mean no offense, but here in the US, I never knew this directive existed, let alone how to comply with it. Will some group in the EU pay me to collect their taxes for them? If not, why should I bear the expense? And particularly so since I already have to bear the expense of my local tax laws. --Essentially, it seems this far reaching EU law exists to please some political purpose, like pretending to level a playing field, but as far as I know, it's mostly ignored or unknown outside of the EU (and possibly within the EU as well).

[jibjab]

I (European) didn't know about it either until recently :-).

It is strange though, because it seems to keep the EU, and national VAT registrations quite busy [1][2], while no one on the outside seems to be aware of it, nor is anyone enforcing it.

[1] http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPort... [2] http://ec.europa.eu/taxation_customs/vies/faqvies.do

[jpcosta]

I am based in europe and my hosting service recently requested me to confirm my details (country of residence etc..) to charge VAT in accordance with EU laws.

[rmc]

For the record, a 'Directive' is not a law upon people. It's something that individual member states must implement. So Each EU member state must implement this law. The EU has no courts for people (you can only bring countries to the EU courts), and likewise it has no prisons for people. It would not be the European Union that charges you with this, but it would have to be an individual member state.

[SabrinaDent]

However, I have never seen non-EU based companies do this. Why is that?

iStock charges VAT based on billing residency. So does Big Fish Games. That's just where I've spent money today, so yeah, it's common.

[jibjab]

Hmm, so I guess the thresholds Patio11 mentioned exist.

iStock and Big Fish Games are very large companies with several offices around the world and a large share of B2C sales, so they started charging VAT.

Apparently, most SAAS companies don't make these thresholds, not even the larger ones, as github/slicehost/37signals/mailchimp/and many more don't charge VAT at all...

I still wonder what those thresholds are though..

[rabble]

It seems that this rule only applies on B2C sales. You only need to figure out what to do if your end use is a consumer, not a company.

[jibjab]

True, but no one seems to ask European based companies for their VATIN (http://en.wikipedia.org/wiki/Value_added_tax_identification_...) to check if they're really companies.

"Suppliers of electronic services, such as anti-virus updates are obliged to charge VAT on the service. If the purchaser of these services is a taxable person, then in certain circumstances, it is the customer, rather than the supplier who must account for the VAT. For this reason, the supplier may ask for the VAT identification number of the customer, so that he can confirm whether it is he who must charge the VAT or whether the customer himself will account for the VAT. If the customer does not have a valid VAT number, then the supplier will charge VAT. For additional information, please see VAT on e-commerce (FAQ)"

http://ec.europa.eu/taxation_customs/vies/faqvies.do#item3