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Comment by boudewijnrempt | Hacker News Reader

Dmitry is a freelancer who lives in Moscow, not an employee. For the kind of work Dmitry does, there is no VAT appliccable in Russia. If the Krita Foundation had been Russian, no VAT would have been applicable. There is no VAT ID on his invoices, but he does send invoices. He also keeps ownership over his work, and the Foundation doesn't tell him what to work on...

But since the Krita Foundation is in the Netherlands, the tax authorities feel that the VAT is transfered to the Foundation. Like I said below... If 100% of our income had been from donations, no VAT would have been transfered. If 100% had been from sales, it would have been transfered, and then we would have claimed it back. Since it's a mixed bag, 100% is transfered, and we could only claim 15% or so back.

I still don't understand the logic behind that, though...

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They think you should pay VAT on imported services? That sounds very fishy to me. I've never heard of such a thing (and I have been exporting into the EU for many years).

Yes... It's no wonder that my first accountant never realized that this could be possible.

Seems if you click enough, the tax site does mention it in some obscure tool. I always thought it only applied to goods.

For the dutch: https://www.belastingdienst.nl/rekenhulpen/diensten_in_en_ui...

Honestly, your accountant sucked. All the rules are about making sure value produced is taxed exactly once. No more no less. If you find a loophole out of that, you better triple check that, because it is definitely not the spirit these tax laws are written in.

Not to blame you - i too would trust a professional. Also, in Holland, accountancy is a protected profession. You can report them, because at the end of the day he/she took a risk that you would likely personally not have taken if you were aware of it.

You should, in most places of the world that have VAT. E.g. you pay VAT on inbound courier services like UPS, FedEx, atop of the duty on the goods they carry. (but not on outbound ones).

What do you mean? You pay VAT on imported goods. Not on imported services.

You might pay a customs duty on imported goods, but you don't pay VAT.

It depends. Goods from inside the EU: you'll pay VAT (and recover it). Goods outside EU: you pay import duty (which might include VAT - but you don't actually pay that VAT as a company, because it's VAT)

If this wouldn't apply to services, it would give non-EU suppliers an unfair advantage.

You need to pay VAT on imported goods into the EU.

In Germany it is called "Einfuhrumsatzsteuer".

https://www.gov.uk/goods-sent-from-abroad/overview

https://www.gov.uk/goods-sent-from-abroad/tax-and-duty

> You pay VAT on goods sent from non-European Union (EU) countries and EU special territories (eg the Canary Islands) if they’re:

> gifts worth more than £39

> other goods worth more than £15

> alcohol, tobacco products and fragrances (eg perfume, eau de toilette and cologne) of any value

Customs duty is different.

> You’ll be charged Customs Duty on gifts and other goods sent from outside the EU if they’re above a certain value.

> The value includes:

> the price paid for the goods

> postage, packaging and insurance

   Type and value of good   Customs Duty
   Anything under £135      No charge
   Gifts worth £135-£630    2.5%, but rates are lower for some goods - call the helpline
   Gifts above £630 and other goods above £135	The rate depends on the type of goods and where they came from - call the helpline

If that distinction would exist (it doesn't) it would be another huge loophole.

Ill sell you a car for 1 cent if you also take the car care service where we email you a magazine for 60k. Tax avoided.

And companies within the country that would have to pay tax couldnt compete with that. So soon everybody in the country would be unemployed.

You pay VAT on imported services. If you don't and you aren't a resident of an exempt territory, you breach the law.

http://europa.eu/youreurope/business/vat-customs/cross-borde...

see the 'services' tab.

"If you receive services for the purposes of your business from a supplier based outside the EU, you must generally pay VAT at the rate that applies in your country, as if you had supplied the service yourself "

Europe wants you to pay VAT on "electronically supplied services online" even if the seller is outside the EU. That might not apply in Dmitry's specific case (as a human and not a robot), but it's certainly not restricted to just goods:

https://ec.europa.eu/taxation_customs/individuals/buying-goo...

(EDIT: Ahh, varjag beat me to a similar point while I was typing!)

Really? I always need to charge/pay VAT on services. The only exception is if both are VAT-registered businesses in the EU (but in different member states), in which case you can charge 0% VAT.

We're talking about things imported to the EU from outside the EU. Do you really pay VAT in europe on services you buy in the US? Or in Asia?

Yes?

You have to declare this. You don't physically pay of course, it's just taken into account for the VAT balance.

The problem (at leas in Japan) is the other way around. If I export an service from Japan to another country, I have to pay the Japanese equivalent of VAT. The importer does not generally have to pay (but I guess it depends on the place) because it has already been paid.

The problem for the Krita foundation was that their employee (who was outside of the EU) was doing consulting work through Krita. It didn't matter that he resided outside of the EU, because he was working as an employee. I presume if he were an arms-length contractor, he could have invoiced the work personally (and that's how they really should have set it up -- I assume he was trying to avoid Russian tax by invoicing through Krita, but I'm speculating).

So it was an EU service done in the EU (even though the employee was physically outside of the EU). VAT has to be paid for that. What I don't quite understand (and what seems to also mystify the Krita people) is why they have to also pay VAT on their donations. That's a pretty crazy law.

I think you got it completely wrong. He was not an employee. He was providing a service to the foundation and sending them an invoice. I guess that if he had been in the EU instead of Russia, they would have noticed earlier that they were required to pay also the VAT. As he was in Russia, they had to account for the VAT owed to the tax authorities for this imported service themselves but they didn't.

Oh I see. Because the VAT was never paid in Russia. That makes sense (in the twisted way that VAT makes sense). Thanks for clearing that up!

Are you selling to consumers or companies? If companies: they need to pay taxes: not your legal risks but you be wise to warn them. If consumers they need to declare it or the service or good can be confiscated.

None of this is fishy.. it works like this between all Western nations and all other modern economies. And if you find a country that is an exception that that would be a huge bussiness opportunity for every one just moving profits that way.

There was actually a way to do this. Cheat your way out of VAT. But its a complicated trick only companies like Apple and IKEA use and that trick is under full attack by both the US and EU government.

Hey, kudos on great product! You really should create donation page for new features once a year or something like that, because Krita has value.

Also, ignore critique, most of them never dealt with bureaucracy in EU and native countries. Such a mess.

Just curious, if Russia has no vat for that service, Dmitry is based in Russia and the sole purpose of the foundation is to support him, why was the foundation set up in the Netherlands and not in russia?

From the article it sounds the Foundation is run by other (Dutch) people working on Krita who may or may not be paid from it as well.

Yes... I'm Dutch, so that's where I created the foundation. Originally, we wanted to work through the German KDE e.V., but they couldn't support development work financially.

Thanks!

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