Tax is not a lot of fun at the best of times. If you're a small or medium business with limited resources, it can be a challenge to stay on top of all the legislative requirements and changes.
When you're a digital retailer selling to multiple countries, though, the challenge can be compounded exponentially. Knowing what needs to be paid when and to who is a constant struggle for international businesses.
In 2019, though, paying your VAT internationally will all become a little simpler. As part of the EU's new 'single digital market' strategy, online traders will no longer be required to register for VAT in the country in which they are trading. Instead, all digital businesses selling goods outside their home country will pay VAT through a unified portal - the EU's 'one-stop shop' for VAT charges. The changes also mean that VAT will now be paid in the "member state of the consumer", ensuring a fairer distribution of tax remittance throughout the EU member states.
Why is it happening?
If you think handling VAT is difficult for your business, try managing it across the entire EU. Every year, EU member states miss out on €5 billion in revenue due to VAT fraud. Meanwhile, small businesses face costs of up to €8000 for every country into which they sell their goods. The new legislation plans to help streamline these costs whilst simplifying access to tax revenues.
The details
The new legislation is part of a more general overhaul aiming to distribute tax revenues across the EU more evenly and cut down on fraud. Other articles in the new legislation include:
- A new portal for distance sales of below €150 moving into third countries
- New liability for online platforms to collect tax on the distance sales they facilitate
- Removal of the necessity for businesses to register for VAT in the countries into which they sell
- Simplification of existing legislation pertaining to startups and SME's which means they can continue to apply home-country VAT rules under a limit of €10,000 in cross-border sales
- Removal of the small-consignment VAT waiver for consignments under €22
This will affect you if...
...yup, you guessed it. If you are selling goods to consumers (not businesses) outside your home country via a digital platform you need to be aware of the changes in legislation. If you are a business in the UK supplying digital services to a company in the EU you must register for VAT MOSS (VAT MINI One Stop Shop) even if your business is under the UK VAT threshold of £85,000 in revenue. This applies to all forms of distance selling to consumers and non-taxable persons.
When is this happening?
The new ruleset for international VAT payments was decided on the 5th December by the EU council. However, the first changes - namely, the simplification of VAT for digital goods and services - won't come into force until 2019. By 2021, all business selling goods through online platforms or selling services online should be paying VAT through the MOSS system. 2021 will also see the elimination of VAT exemptions for small consignments.
With the extension of the MOSS system life will hopefully get a little simpler for international distributors. If you have any more questions about how the new legislation will affect you, please don't hesitate to reach out to us here at hello@neondigital.co.uk.
