READ THIS IF: You are selling goods to people in the EU and you are afraid that those goods are considered “Electronically Supplied Services”.DISCLAIMER: EVERYONE IS DIFFERENT. THIS IS NOT ADVICE. PLEASE SPEAK TO YOUR TAX PROFESSIONAL. MORE INFO IS COMING EVERY DAY. STAY TUNED. WATCH WEBINAR: HERE
QUESTION 1: What is EU VAT?
It’s a sales tax – like HST/GST/PST in the EU. Each Member State (country ) in the EU has a different rate that they charge. Like Canada, where each province can either be a HST/GST/PST combo at a certain rate, each Member State sets it’s own rate. This rate is charged ON TOP of the price of goods/services sold, just like HST/GST/PST.
New law as of January 2015 – DOES THIS AFFECT YOU?
From 1 January 2015, EU VAT will be charged in the country where products are bought (where your customer lives) as opposed to the country where they are sold (where you live). The legislation applies to electronically supplied services.
QUESTION 2: Are you selling electronically supplied services?
DEFINITION: “‘Electronically supplied services’ shall include services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.”
TRANSLATION: Where there is automated delivery following the sale, it’s a e-service.
- Basically, it all depends on whether the seller is manually involved or not at some level of delivery and confirmation after sale
- POTENTIAL WORKAROUND: If you MANUALLY email and MANUALLY ATTACH CONTENT then it may not be considered an e-service. HMRC stated this in an online discussion on Nov 27, 2014. YOU MUST HAVE A PERSON MANUALLY ATTACH AND EMAIL CONTENT TO CUSTOMERS IN EU (This could change)
- NOTE: E-books, courses and downloads that automatically send to customer and email them automatically ARE CONSIDERED ELECTRONICALLY SUPPLIED SERVICES. CDs, floppy disks, potentially USBs are NOT… this may be a work around – ship your content in another way than auto-download.
TAKE ACTION: Are you able to manually email and attach content for any customers in the EU? If so, you may not have to worry about this because you’re not considered to be selling electronically supplied services. How manual/human interaction can you get?
QUESTION 3: Who Are You Selling To?
For non-EU businesses selling to the EU
If your customer is a business in the EU, they should be registered for their own VAT number and as a business, they are responsible for collecting and remitting VAT. You don’t have to.
Take Action: Go through your EU clients, who are businesses (B2B) and who are consumers (B2C). Write down which Member State (which country) they live in and how much money you made from each Member State (country) so you know where the important ones are.
You sell to Business: (B2B) If you sell to businesses, you will need to collect their VAT number and confirm that they are responsible for paying VAT on their own revenue and expenses. THIS IS IMPERATIVE. Without their VAT number, you cannot escape the EU VAT. This may be something you require on your site. Maybe customers from the EU need to enter in their VAT number and agree to a waiver or something to accept responsibility. Please wait for more details on this.
You sell to Consumers: (B2C) They don’t have a VAT number and you ARE selling Electronically Supplied Services. This affects you.
QUESTION 4: What do you need to do?
- You can register for MOSS (apparently you have 10 days if you sell to someone in EU after Jan 1 until you register. First quarter filing is March 2015). This is a “Mini-one-stop-shop” in the EU. Instead of registering in each 28 Member States in the EU, you can do it in one place.
- Choose which countries you want to continue selling to and know the laws there (invoicing rules, VAT rates etc.)
- YOU GOTTA KNOW YOUR STUFF
- You are required to monitor WHICH country your client is from
- You are required to monitor WHAT RATE to charge depending on what country they reside in (each country has it’s OWN rates)
- You are required to know what INVOICING RULES for EACH COUNTRY. Invoicing is MANDATORY. E-Invoices are allowed, E-invoices may be sent using two methods (e-signatures and EDI) as long as each invoice fulfills two main conditions:
- the customer must accept receipt of invoices by electronic means (e-signatures and EDI)
- guarantees need to be provided for:
o the authenticity of the invoice’s origin; and
o the integrity of the invoice’s contents.
4. You are required to get TWO (non-conflicting) PIECES of evidence (it’s been suggested to ask for THREE) of where that customer normally resides. (There is a movement to get micro businesses exempt from this since most of the payment systems cannot provide that information – stay tuned)
5. Filing for MOSS is quarterly (20 days after quarter end) online and payment made (this hasn’t been fully flushed out for non EU businesses)
6. Keep the evidence for 10 years
7. Make Your Web-store VAT friendly.
i. Get the billing info
ii. Get the IP address
iii. Show different currency
iv. Show different VAT rates applied
v. Allow for electronic invoicing and e-signature
SOME OPTIONS: No matter what, find a way to TRACK WHERE YOUR CUSTOMER IS. When dealing with EU customers, keep it manual (manual email, manual attachment, manual manual, manual). Maybe try to change your services so they don’t fall under an Electronically Supplied Service. SEE WEBINAR ABOVE. Have your administrative team on board for the additional work. You need to put some sort of notice on your sales page for customers from the EU. If they are from the EU, they email you directly, they DO NOT fill out your regular online shop/marketplace inputs form where they would receive an automatic email or download. (STAY TUNED FOR ANY CHANGES)
If you choose to register for MOSS and go forward, you may want to select only a few number of countries where most of your clients are to sell in. Know the rules inside and out for each of these places, register for MOSS, follow the rules and find an online market place that will help you collect your TWO NON-CONFLICTING PIECES OF RESIDENCE DATA. More on this to come. It is onerous.
Question 5: Is there hope?
Yes. The last person in the supply chain to the customer is responsible for the VAT. If you sell on an online shop/marketplace, things could change.
You are responsible for paying and remitting the EU VAT if the online store/marketplace is ‘acting as an agent’ only – AKA, you are selling directly to the customer. This is likely to be true if, for example, you’re the one processing card payments for your sales like PAYPAL. PAYPAL WON’T HELP YOU HERE
The online store/marketplace needs to do the following in order to be considered the FINAL stop, selling directly to the customer and responsible for EU VAT.
- Authorizing payment
- Authorizing delivery
- Setting terms and condition of sale
AKA, the online store is ‘acting in their own name’. You sell your services to the online store and then they sell to the customer.
You should check with the company you’re working with. CONFIRM THEIR ROLE.
Amazon and Apple currently pay the VAT for their sellers and Google Marketplace is said to be changing their terms from the first of January 2015.
Also – hopefully micro biz is exempt from the onerous two pieces of evidence and can just go by what the customer puts as their billing address.
This is a quick note regarding the new rules from the EU VAT.
This directly affects those who sell digital products (like e-books, e-courses, etc) to customers in the EU as of January 1, 2015.
There’s a lot of panic out there, but everyone just remain calm until we have all the facts. I’m working on figuring out best practices, who needs to register, where to register and how to reduce administration for you, the entrepreneur, so you can keep selling internationally. I’m looking into the One-Stop Shop EU VAT implications and the online tools that may be able to help you out.
If you’re interested in keeping abreast of the situation, I’ll likely be hosting a spreecast/webinar on it shortly to get the word out fast/effectively.
Sign up below and I’ll keep you posted.
Guest Post for The LRMC
Tax season is a scary time for a lot of people. This year, take charge during tax time with these four important things you should know about your taxes.
1. Do your taxes on time – April 30th.
I know this sounds like a no-brainer, but many people don’t actually file on time—or at all. This is a big no-no. If you owe money and you don’t file, the late penalties are terrible. You end up spending more money in late fees and interest than you would have in the first place.
First Time Late Filing Penalty: If you owe taxes and do not file your return on time, the CRA will charge you a late-filing penalty. The penalty is 5% of your tax balance owing, plus 1% of your balance owing for each month to a maximum of 12 months. So, if you don’t file for a full year, you will have 17% of tax owing for the penalties alone.
Most people don’t file if they’re afraid they owe and don’t have the upfront money. File anyways. Then call the CRA to work out a repayment schedule or opt for tax relief. Believe it or not, they’re actually quite willing to work with you and your financial limitations to get your taxes paid.
2. Don’t file late again.
It’s not the greatest idea to be continually “non-compliant” when it comes to government agencies. In extreme cases, legal action can be taken – garnished wages and bank freezes are no picnic. Filing late repeatedly can be financially devastating; if you file late within three years of a previous late filing, the penalties nearly triple!!!
Repeatedly Late Filing Penalty: The late-filing penalty becomes 10% of your tax balance owing, plus 2% of your tax balance owing for each month that your return is late, to a maximum of 20 months. That is a late filing penalty of 50% of your tax owing.
3. File your taxes yourself – if it’s basic.
I’m not saying everyone should file their own taxes. Tax professionals are important. However, if you have a relatively basic tax situation and usually use mall tax kiosks or non-accountant tax stores to do your taxes, you could do them yourself and save a bundle.
Nothing can replace the work of a CA, CGA, or CMA, but these services can be very expensive. Most of the time, people working at tax kiosks are not certified accountants; they’re simply employees working on some sort of tax software. If this sounds like your tax guy, you should do it yourself.
Online tax software is cheap and even free for people below certain income thresholds. Software like Ufile or Turbotax offer free tax advice as you go and they’re set up to prompt you with questions for all tax credits and deductions you may be eligible for so you don’t forget. Check out this list on the CRA website.
4. Educate yourself
Educate yourself on the tax deductions and credits available to you, not only so that you feel confident to file for yourself, but also to ensure you are taking the proper steps during each tax year to qualify for certain tax breaks.
Most people aren’t educated about the deductions and credits available to them and therefore don’t claim or optimize these expenses. For example, if you have recently moved, you can often deduct certain moving expenses including the costs of transportation, packing and storage costs. If you are preparing to move, it’s best to know about these deductions before so you know which receipts to hold onto. It’s often more worthwhile during a move to pay for various services that are tax-deductible rather than doing them yourself.
Get educated and take control. Go to workshops, read books. Find ways to learn about what tax credits and deduction exist and find ways to use them throughout the year.
Learn more about all filing info on the CRA website.
Happy Tax Season!