“I’m in the US – what if I just ignore the EU VAT changes?”
happybootstrapper.com
happybootstrapper.com
imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now.
However, part of the problem is the authorities assuming that everyone sells through marketplaces, and that marketplaces would be the ones to tackle the issue. You'd be surprised how many people this is going to affect who are just selling a few items with PayPal - and PayPal cannot supply the required data to comply.
The people that got most vocal about this were mom solo entrepreneurs. I wrote a follow-up blog post about this: http://blog.satago.co.uk/2014/11/when-the-crafting-community...
You mean you have to pay VAT even if you earn under £69,000 (I think that was the threshold last I checked)?
I guess they could pressure payment services (Paypal, Dwolla), but Bitcoin could always be used as a fallback- it's also VAT exempt or at least appears to be from my quick searches on the subject.
In the past in the United States, the providers (such as Amazon) have placed the burden of paying state taxes on the consumer - I wonder if they could, somehow, also make the consumer responsible in this case and thereby continue to operate in the same manner?
The reasoning behind the law is perfectly logical, and the problem they're trying to solve very real. The actual implementation utterly impractical, and a major burden on pretty much everyone.
But the only people who could have told the political dinosaurs and clueless civil servants just how impractical chose to pretend the change would somehow magically just go away.
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
And what exactly do you think an affected seller should have done if they had no reason to know these changes even existed?
Certain government representatives have been claiming that they have provided information and notified businesses. However, right now the Internet seems to have no shortage of small businesses who claim they had never heard of this change until very recently. I can certainly understand that: I personally run two businesses that could potentially be affected by these changes, both already VAT registered, yet I have no indication that our government has made any attempt to notify either company in any way about these changes.
Even some on-line payment services and marketplaces appear to have had no idea, and it looks like some won't be able to support the required taxation and record-keeping in time. These are the very organisations that many people in governments seem to have assumed will fix the problem because according to them almost every micro-business uses one!
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
I'm not convinced it would have helped even then. This is the same EU that imposed those mandatory cookie notices. More recently, they pushed through consumer protection regulations that mean if someone wants to buy a digital download and gives you their money today, the default is that you must not actually provide the data to them for two weeks, among other similarly unhelpful-to-anyone measures.
No doubt some of these measures were promoted with genuinely good intentions, but it is clear that the people writing the laws and regulations are completely disconnected from the realities of running a small business. It will be literally impossible for a lot of small businesses to comply with the letter of the law under some of the new rules.
The biggest irony of them all is that the most likely beneficiaries of these changes are... big US businesses, specifically those which function as on-line marketplaces and have the resources no small business does to investigate and comply with all the new taxation and reporting rules and to put up a serious legal fight if they are formally investigated for failing to do the impossible.
How about: If those affected had even known that this change was happening.
I'd certainly heard that they were changing the VAT rules to crack down on the likes of Amazon. That I'd now need to charge VAT based on country of consumer. That's not the crappy part of the legislation as I currently don't need to charge any VAT at all in the UK.
I hadn't heard that my VAT threshold was being invalidated
I hadn't heard that I'd need to keep records for 10 years (currently the longest I need to keep anything is 6 years).
I hadn't heard that I'd need to register as a Data Controller (as I now need to store personal info for 10 years). This leaves me liable for massive fines if anything goes wrong security-wise in the next 10 years.
It's basically a massive cockup that was targeted at Amazon, Google, Apple and the like, but has instead hit small business startups and independent traders the hardest.
- You are responsible for verifying the location of your buyer (how? who knows!)
- It is not enough to know the country code of your buyer. For example the Canary Islands have country code ES but have a different VAT rate from mainland Spain
- Some VAT rates can be fractional, so you can run into problems if you were using integer calculations in cents to prevent rounding errors (thankfully, for digital services all VAT numbers are round number starting this year, let's hope it stays that way)
- If you register for a MOSS then you pay VAT in euros, but you may have charged your customer in a local currency (GBP, DKK, CZK or SEK). You need to use the exchange rate at the day of the sale
This is just the top of my head, there are probably a bunch of minor issues I forgot.
I'm not sure this is exactly correct. For the UK, the guidance[1] at the moment says:
"If you charge or invoice customers in a currency other than the one used by the MSI and you record that price in your accounts in the foreign currency, you must:
- convert it into the MSI currency at the end of each quarter
- use the conversion rate published by the European Central Bank (ECB) on the last working day of the quarter
However, if to meet VAT invoicing or other accounting requirements you convert the foreign currency into the MSI currency using an agreed published daily or monthly conversion rate, you can use this converted figure when completing your quarterly VAT MOSS return."
In the above, "Member State of Identification (MSI) is the state in which you’ve registered for VAT MOSS."
So it looks as though there are three possibilities here:
1. If you charge customers in your own native currency, then you just have to apply their location's tax rate on the transaction, instead of applying your local tax rate as at present.
2. If you charge customers in their own currency (or any other that isn't your native one) then you have two options:
2a. You convert the amount charged to your native currency at the time of the charge, and use that figure and the customer location's tax rate to calculate the tax due.
2b. You record the transaction in its actual currency at the time of the charge, and then later you convert to your native currency according to the standardised exchange rate published by the ECB at the end of each quarter, use that figure to calculate the tax due, and use these figures when you file your MOSS return for the quarter that just finished.
But I'm not an accountant, and like many here I've spent too much time in recent weeks just trying to get straight answers and figure out what all the "guidance" really means, not to mention trying to find out minor details like what the current tax rates to use for each location actually are (including variations within individual member states) and how we're supposed to keep up with any changes in the future. So don't take my word for anything, I'm just trying to interpret some official guidance like everyone else...
[1] https://www.gov.uk/government/publications/vat-supplying-dig...
The people who didn't know about it are those it is the worst for. Small traders who were not VAT Registered. There is no reason why someone below the VAT threshold should be poking around in VAT legislation just in case it will suddenly apply to them. When I wrote this post (http://rachelandrew.co.uk/archives/2014/10/13/the-horrible-i...) in mid-October, there was next to nothing online, other than in a few PDFs from tax experts. Certainly nothing that would have alerted non VAT registered individuals selling a few knitting patterns and so on. To blame those people, and suggest they were sticking their head in the sand is wrong. They didn't know.
I totally agree and addressed that in my other blog post which is targeted to EU folks: http://www.happybootstrapper.com/2014/eu-vat-changes-online-...
I hope lots of people read it and sign up the petition to set up a revenue threshold: https://www.change.org/p/pierre-moscovici-a-unilateral-suspe...
Now after talking with other SaaS owners it seems we're one of the 'few' non-EU companies that actually complies with this - however that choice is rather due to the provider we use.
We comply with the rules by using a payment reseller ( fastspring / saasy ) which allows us to reduce accounting ( only major payments are being sent from reseller ), and at a comparable rate to stripe ( 1-2% higher )
Since they specialise in regulations and payments, it's really a big headache off our shoulders - plus you reduce the invoices you have to handle. Also it removed that whole merchant account setup process etc, which was a bigger pain for a Hong Kong based company.
No. A step in the proper direction would be admitting that VAT is a regressive hidden tax on employees, and abolish it or replace it with more transparent taxation of real wealth.
Until that happens, we're all just jumping through hoops so that European politicians can tax the working man while hiding behind meaningless "consumption" codewords.
One would think that somebody would get a clue that reducing the VAT would make it more affordable to more companies, but unfortunately law makers are clueless.
Anyway, if your business can't pay tax it should close and you should find something more profitable to do. I guess you can argue that some businesses of cultural or otherwise non-monetary worth should have some subsidies, but as long as the company goal is to "bring in the dough", then that's the dumbest excuse I've heard. On par with "just because".
And how does that culture happen? Do you think people just get up one morning and decide to do tax evasion?
Of course they are linked - especially in countries in which the private sector is underrepresented and overwhelmed compared to the retired, the unemployed and the ones in the public sector, all of them assisted socially.
In a country in which 60-70% of a company's revenue goes to taxes, such that the government can deliver their electoral alms, it's not so much about bringing in the dough, but more about surviving for one more year with food on the table.
No, they get brought up by their parents to do it, usually. The justification is that the government will just waste it anyway, which can be true. Of course, the culture that breeds tax evasion is the same one that breeds poor government. Happily I don't have to deal with it.
It's cultural, tax evasion is higher in countries which were recently dicatatorships (Spain, Portugal, Greece) or never developed a strong central government (Italy.)
Do you have any sources that support that assertion? Increasing tax rates increase the incentive to avoid said taxes. If I'm going to go to jail for tax fraud, I'm not going to that if the rate is 2%, but I might if it's 50%.
Part of that is that many people in the north consider a welfare state (http://en.m.wikipedia.org/wiki/Welfare_state) worth paying higher taxes for. "I'm a happy taxpayer" is not an unheard of statement, and said without a grain of irony.
Another part is that it is harder to evade taxes in a culture where people are more honest. If the typical accountant complains if you have money you cannot account for, and cannot be bribed, it is more of a hassle to find one that complies with you (conversely, if your accountant suggests ways to evade taxes, more people will be inclined to do it)
Historically, many consider that culture to be the result of Protestantism. Many Protestants consider democratic government to be the will of god (http://en.m.wikipedia.org/wiki/Protestant_culture#Government). That makes any form of revolt against government a sin.
Taxing wealth has big problems with transparency and evasion.
Progressive taxation is not a means to an end, just one mechanism to implement income redistribution. See eg basic income proposals with flat income tax.
But a worrying trend in EU lately has been to cut payroll taxes and raise VAT and other consumption taxes without compensating them in transfers, a combination which does hurt income equality.
That's charity, not progressive taxation. Besides, VAT is fixed-rate, which makes it regressive in practice.
> it's printed on every receipt you get
But nobody is taught how it works, in school or elsewhere, and unless you run your own business you'll never find out. Also, because it's segmented, atomic changes to different segments are usually reported under "business news" (unless it's for stuff like petrol and tobacco), the sort of thing most readers will skip. Honestly, the more you look into VAT, the more you see how it's always been used to raise taxes on employees without making them aware.
> Taxing wealth has big problems with transparency and evasion
Preying on the weak is obviously easier, that's always been the case. It doesn't make it right.
> a combination which does hurt income equality.
Amen.
This is how all tax works, btw. Income tax is nothing but a wealth tax limited to wealth accumulated over a certain period. There is nothing impossible about it.
It's like the discussions people have around here about how keeping salaries secret only helps employers. Keeping tax codes byzantine is good for corrupt politicians and special interest groups.
Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. Same tax rate despite the increased bill.
Now, rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT...
Are people shopping with a calculator?
They know it exists, they don't know how it works or why (unless they run a business).
> Plus, prices in shops have to show VAT-inclusive prices to end customers
... which is exactly what I mean by "hiding it". You'll hardly ever see "€ 4.00 + € 1.00 vat" when going through shelves; you'll always see "€ 5.00". You have no idea how that price is calculated, what is tax and what is not, until after you've paid -- and even then you'll see an aggregated total, so if your basket included stuff that was taxed in different ways, you'll likely never know. Which nobody cares about, because we don't know how VAT works, for us it's just a random pricing element like the cost of materials. Except it's not: when it's said and done, it's a tax on fixed-income employees who can't justify a VAT return.
The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent.
> Secondly, it's not regressive because the more goods and services you buy, the more you get taxed.
Nope. It's regressive because it's flat rate. A millionaire buying a dishwasher will pay the same amount of tax as a regular joe buying the same dishwasher, in practice penalising the poorest of the two. That's the definition of regressive taxation.
The theoretical notion that this is evened out by millionaires buying dozens of dishwashers versus joe's single one, is just that: theoretical. In practice, it does not happen: consumption levels are basically the same across most of the population.
> If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat.
If you buy a luxury yacht, it's likely not owned by you; it's owned by You™ Ltd, and filed as asset for this or that reason. You™ Ltd will diligently file its VAT forms, of course, and in the end it will get that VAT money back. Of course there are rules and enforcement etc etc, but in practice that's how it works for everything but the most outrageous items.
> rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT
No, but VAT makes it trivial to game the system in practice, which is why businesses are fine with it. Note how there are constant attempts at abolishing "pesky" laws like inheritance tax or stamp duty, which touch very few individuals but are hard to game; whereas VAT involves everything and everyone but it's just accepted as part and parcel of doing business, because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
What? It's just a percentage. You don't need to be a business to understand that.
...which is exactly what I mean by "hiding it". [...]
That's not hiding it. Companies can (broadly speaking) also show ex-VAT prices, should they choose, they are just obliged to show the inc-VAT ones more prominently. People care about the end cost, I'd guess if you polled people, they'd overwhelmingly choose the inc-VAT display over ex-VAT.
Also, in the UK, your receipt will show the breakdown of tax and may also highlight tax-exempt items, so if you really care for the details, you can see them.
The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent.
Again, I'd wager that the actual costs are the ones that consumers want to see, not the pre-tax prices. Do US customers really sum their trolley of goods in their heads and add on the exact tax % to know how much they are spending before they hit the tills? Which is more convenient?
Nope. It's regressive because it's flat rate
Um, I'd suggest that you look up the definition of a 'regressive tax', you appear confused. 'flat rate' or 'proportional tax' is _not_ regressive, again by the very definition!
[yacht ownership discussion snipped]
because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
VAT return? End customers have no VAT to claim back. They are people that pay it! Now if you are running a business, and so have business purchases, then obviously you need to be aware of tax regulations. If you are a 'n00b' employee then you pay it.
It's very common among people who have their own company to buy things like TVs and computers as business purchases and then just kind of end up keeping them in their living room.
What you have to understand is the process to claim it back, i.e. the fact that businesses and business owners effectively don't pay it.
> the actual costs are the ones that consumers want to see
Of course, which is why VAT is so clever: effectively, it's so easy to ignore that most people do just that and don't realise that they're paying a tax that businesses and rich people simply don't pay. It's the best type of hiding: in plain sight.
The American approach is more annoying, yes, but it's also more transparent: the consumer is forced to feel the full weight of tax, and can perceive how businesses are completely unaffected by it.
> 'flat rate' or 'proportional tax' is _not_ regressive
In practice, it is. If I pay the exact absolute amount of tax on a transaction for the same good, regardless of my wealth, then in practice it's regressive because it will weight more on the less wealthy. A flat rate is less regressive when transactions differ (the same percentage of a bigger transaction will result in more tax), but this is not the case with VAT. As I said, the theory that this is compensated by rich people buying more expensive goods is just that, a theory; in practice, this does not happen n any significant scale.
> End customers have no VAT to claim back. [...] Now if you are running a business
Of course. My point is, most wealthy people will be running businesses, and hence will not pay tax on pretty much anything except the most outrageous items. Most of those Porsches and BMWs you see on the streets of London are not bought by individuals, but rather by (shell) companies such people run. They're still managed exactly like they were an individual's private property, but on paper they're not and so there won't be any VAT paid by such "end customers".
> If you are a 'n00b' employee then you pay it.
yup. And that's my point: it's a tax on n00b employees who cannot afford good accountants and shell companies. They're the only ones who really pay it all.
Could you elaborate a little more on that? I'm curious of your reasoning.
VAT in itself is another debate. However, as many others have commented on this in this thread already, I don't have to go into specifics too much.
That is not true - VAT is and has always been a tax for the buyer, not the seller. Of course, having VAT is awful for us - in my country it's an astronomical 24%. But that's besides the point.
Edit: yes, I meant VAT "reductions" not "payments". My point holds though: there won't be any more VAT incentives to move.
So if you have $0 VAT from EU purchases, but $40 VAT from sales, you pay $40. But if you paid $40 VAT from EU purchases, and have $40 VAT from sales, you pay out $0.
EU wants to hinder rascal states that make money at the expense of the rest of the union taking advantage of their small size: they won't be able to collect VAT for business made in the whole EU just because they offer a lower rate. (I mention the size because the deal is convenient for the state only if its economy would be otherwise very small).
It does not matter if the company is American or European, I could have made a Luxembourg subsidiary of an Italian company and paid Luxembourg VAT rates.
Of course, this is a very stupid way of doing it: it works only for VAT, while the countries can still be fiscal havens for any other tax, and moreover it makes life hell for small B2C business.
The proper way would just agree on a uniform tax policy. Never going to happen.
They should "just" add a size limit or at least make it much simpler for companies to comply with the law.
Unfortunately not all EU countries have a lower threshold and the new arrangements have a lower threshold for mandatory VAT registration of any amount -- a single €0.99 sale in Estonia and whoops, you need to be registered to collect and pay VAT in Estonia or via your own tax authority's One Stop Shop.
If the £81,000 threshold applied to the new arrangement, nobody would be shouting. But as it is, this will kill a huge number of spare bedroom businesses and start-ups.
I registered my small business for VAT voluntarily when I was bringing in much less than 81k since I found that larger companies wouldn't deal with me if I wasn't VAT registered. Since I already had an accountant and used software for my bookkeeping the effort and increase in costs was negligible.
What is difficult is charging a different VAT rate for every non-VAT registered individual in every country you sell to.
Would of course be done through a service. Maybe it's time for these "innovative" payment processor to actually be innovative and provide this service.
"£81,000 threshold applied to the new arrangement"
It can't apply to the new arrangement since you are now paying taxes in the customers country.
It seems that you would just either do your local sales as before and your international sales through a service or start two companies. That why you should be able to keep your threshold for domestic business. (Don't quote me on this though since I'm not in the UK)
Now they have to charge whatever VAT rate each country within the EU thinks is appropriate for their citizens & there's no "race to the bottom" effect where Google, Apple, Amazon et al try to play different countries off against each other to get the lowest possible VAT rate.
The next stage is going to be tax changes to try and eliminate the profit shifting that all the non-EU companies do by setting up subsidiaries in different EU countries and "licensing" their IP to them at prices that just happen to match the profits made in that country.
Unfortunately, small online businesses are collateral damage in this particular fight.
You can find some more detailed information here: https://www.gov.uk/government/publications/revenue-and-custo...
That's lower than the income tax rate for a middle class American. Why is this rate astronomical? Are there also high property and income taxes?
EDIT: It's an honest question. I know what a VAT is, but I have no frame of reference for how the overall tax scheme is especially egregious for the individual taxpayer. Some other tax rates (income, property, etc.) are surely relevant. A 24% VAT with absolutely no other taxes sounds nice, for example.
By way of example, UK taxes look like:
* ~40% income tax, first £10k untaxed.
* 20% VAT on most goods (food, books, children's clothes are untaxed, heating fuel is taxed at 5%)
* Annual property tax of around £1000 on the typical dwelling.
* 28% capital gains tax, first £10k untaxed in any 1 year. Dividends are effectively taxed as additional income.
In reality UK taxes are of course much, much more complicated than the rough outline above :)
Go do the sums & you'll see. Like I said, the reality is much more complicated, but the figures I gave are roughly in the right ballpark.
Some food is untaxed. For example, cakes are untaxed but biscuits are taxed (or maybe it's the other way round). There was a court case to decide whether Jaffa Cakes were cakes or biscuits for the purposes of VAT: the court ultimately applied the principle that cakes were soft when fresh but hard when stale, while biscuits started off hard and then went soft; hence Jaffa Cakes were officially cakes.
Yes - this is on top of (high) income tax/capital gains tax, etc.
In the UK, on a salary of £40k (i.e. professional mid-career engineer), before you touch the money, the government takes about 25% for income tax and national insurance. Then, they take 20% of everything else that you spend unless it's non-luxurious foodstuffs, children's clothes or paper books. And, of course, if what you're buying is fuel, they actually take 85% of the price.
In addition, you'll pay approximately 2% of the purchase price of a house to the government, and you'll pay approx. one day a month in after-tax income to the local council as a property tax.
US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.
An itemized and detailed claim will be made on my behalf to the insurance agency to get everything paid.
From a user pov it makes no difference how the system works.
Nationalized insurance on the other hand is pretty much the system any American would be used to, except the government pays and you have long queues.
As a US citizen, I'm happy to have an increased tax burden for legislated vacation/holiday days and 20% of the population not having medical bills they can't pay for.
Categorically, unequivocally wrong.
Hospitals cannot just make up charges. They cannot bill you for procedures/tests/services you did not receive (and if they do, you are not "legally obligated to pay it").
I know the anti-US healthcare circle jerk is pretty strong here, but we don't need to just make things up in order to prove a point.
Unless they're a small operation, I don't know that they'd have any direct visibility into the billing/insurance/finance side of the operation. Maybe that is the issue? I don't know how to combat that in a large hospital setting.
The one time I had surgery I ended up getting 3 separate bills for varying amounts, but any time I asked for documentation about a given procedure or test it was provided in writing well before the due date of the bill.
Hyperbole much?
They can charge you for services / products rendered and which aren't covered by insurance, and they can charge any price they want and you're legally obligated to pay it. Of 3 times I helped my parents with processing their hospital bills, it was over $10K in non-covered expenses each time.
Yes, you are legally obligated to pay for services rendered. I think you'll be hard pressed to find someone to argue the opposite, though.
For example once my wife had to go to the er and we'd taken great pains to know ahead of time what hospital was covered best under our insurance. Yet the bill contained test services performed in he hospital that were not covered because a room in the hospital was operated by a separate lab company that didn't accept our insurance. There was literally no way for us as consumers to know that one type of blood test regularly covered by our insurance in a covered facility would go through the magic door into an uncovered facility. Price inflation and surprise bills are emergent properties of the system and that needs to change.
I am all for consumers having choice and taking personal responsibility for their care but our healthcare system makes that effectively impossible.
Reading your previous statement literally (and I saw no reason to read it in any other way), it meant that a hospital could charge you for buying an elephant and you'd be legally obligated to pay.
And you're complaining about other people using hyperbole?
In either case the US tax burden is close enough to EU levels not to make a significant difference.
Globally. Still here might be cases where a particular group funds an unproportionally high part of the spending. And you might be the edge case where you earn the money in country A to save and retire on it in country B, so A's sales tax doesn't affect you this much.
Plus a much better retirement plan. In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance. And unless the stock market returns 8% most people are going to have a rough retirement.
In the US you're lucky to get 3 weeks vacation a year. More than that, you need to quit your job. In EU countries it's generally 6 weeks by gov't mandate.
The greater taxes are probably a good deal.
>In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance.
>unless the stock market returns 8% most people are going to have a rough retirement
Your health and car insurance covers exactly what it says it covers, and retirement plans aren't a mystery. In America you take personal responsibility for things which are done for you in Europe; you can make the wrong choices, but you're allowed to _make_ choices.
Vacation doesn't have much of anything to do with taxes.
That retirement plans aren't a mystery doesn't negate needing 8+% returns to comfortably retire.
In New York State, the pubic employee fund is arguably fully funded, and most employees are eligible to retire at 55 with 2/3 of their salary as a pension. That fund requires a 7% annual return to avoid additional employer contributions.
It's going to get interesting in the US, as an increasing percentage of private sector retirees are scraping by on an average $1K a month whilst public sector retirees are enjoying cruises and taxes are being raised (or services reduced) to fund them.
In America as of 2014 you cannot be denied coverage, charged more, or denied treatment based on health status.
There is no longer an "uninsurable" American citizen.
...if they were born to parents who had insurance they would have been covered.
>So health systems that don't leave people to die must involve an element of the collectivisation of risk.
...insurance is all about collectivisation of risk, is it not? You are paying in, hoping to never collect, and the money you pay in is used to cover those who did need it.
For the purposes of personal budgeting, I don't see why the comparison is unfair. I'm trying to discuss taxation levels, not tax schemes as such.
> US has a 30% tax burden
That's more on point. That's also low. It doesn't include state and local income taxes. It also ignores other kinds of taxes like property and sales taxes. The U.S. has state-level taxes, which complicate things but they definitely affect the individual taxpayer.
That 30% tax burden for the US is from the same wikipedia page as the European tax burdens. I am assuming that the methodologies used to arrive at the figures are broadly comparable.
[1] http://en.m.wikipedia.org/wiki/Value-added_tax
[2] http://adrien-ragot.me/why-i-say-70-percent-tax-in-france/
Isn't that usually the case? High VAT, high income taxes.
VAT taxes sale, but it's not the same as a "sales tax". The rates don't mean the same thing, and it doesn't make sense to compare them directly without taking that into consideration.
Do you have a source for that?
(I ask because I'm definitely upper middle class or possibly lower upper class and I'm only paying ~25% (and I'm in no way tax efficient). Everything I've seen puts the middle class income tax rate below 15%.)
- The median household income for 2013 was just under $52,000 [1] - For that same year, the marginal tax rate for a single person making that income was 25% [2] - If the household is married that drops to 15%.
Most Americans on HN are very likely upper-middle class in income, since that generally means $62,500+ in personal income and a six-figure household income [3]
I think these income stats are incredibly interesting. I never would have considered my wife and I to be upper-middle class either in wealth or income, but according to every set of figures I can find we're pretty solidly in the top 5-8% range nationally. It can be misleading what "middle," "upper middle," and "upper" really mean if you're strictly speaking about gross income.
[1] https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://en.wikipedia.org/wiki/Income_tax_in_the_United_State... [3] https://en.wikipedia.org/wiki/Upper_middle_class#Income
The point was that a 24% VAT doesn't mean much to me when other major taxes are left unmentioned. It actually sounds like a great deal if income and property taxes are only nominal.
EDIT: You're likely neglecting to include both halves of your payroll taxes.
In Denmark, in addition to a 25% VAT, there's an 8% payroll tax and a 40%-56% income tax, property taxes, huge environmental taxes, etc.
Does this distinction actually mean anything material?
Buyers start with all of the money, and it ends up split between the seller and the government. From the buyer's perspective, it doesn't really doesn't matter if this is an income tax on the seller, or a VAT tax on the transaction.
In my opinion, the VAT should be charged based on the delivery address; for digital goods, it would be ideal that all purchases are considered local, and the countries could have an option to introduce a separate "digital VAT rate" that would apply to such purchases.
Alternatively, a pan-EU VAT rate for digital goods only might be a better approach, and probably easier to implement than a universal VAT rate.
it's a race to the bottom that destroys tax revenues. It benefits small "pirate" countries to the disadvantage of large ones that are actually responsible for creating the large markets where real profits are generated. Tax-rate competition has always existed, but globalisation and technology now make it too easy to exploit it in a way that only benefits big business and screws entire populations.
> pan-EU VAT rate for digital goods only might be a better approach
Pan-EU rates for most things would be a better approach. VAT is just the most egregious example. If we have a single market, we should have a real level playing field, including things like taxation, workers rights and environmental standards. We're getting there in a number of areas, but it's hard to make progress on tax because of political implications (and because of pressure from businesses who benefit from the current state of affairs).
"The change was made because EU wants to get more money from transactions for American companies – or to force them to move more operations to EU to get VAT reductions."
and it can be understood by just comparing the table right above, where you can see that for an American company based in the US (last three Non-EU rows) nothing will change, so no American company would be forced to move to EU.
What's true, on the other hand, is that this law would not allow some companies, including some big American ones (like Amazon) to take advantage of putting their European HQ in countries with lower VAT rate, like Luxembourg (15% til this year[1]), and so selling (invoicing) products to endusers for a lower price.
Same can be said for right after about this exact part "a perfectly legal strategy to pay less taxes". VAT is not paid by the company but by the private user that buys the product/service. So they didn't pay less taxes thanks to this, but probably sold more product. If we want to discuss about saving taxes, we can discuss about tax rulings for this companies, though...
I am not a fiscal/economic guy but this girl got it all wrong...so I stopped reading at this point.
[1] due to this law, Luxembourg will raise its VAT from 15% to 17% trying to compensate the money loss caused by this change (afaik it won't be enough)
If only we had some sort of programmable calculating device to automate this kind of drudgery.
Also, try explaining how simple all this is to the self-employed women selling crafts online using PayPal.
Which means that while it has to be taken into consideration it does not really affect stuff that much.
It is a cost of doing business in the EU and it does make things more complex, but nowhere near as complex as before the EU came into effect.
VAT Annual Accounting Scheme
You can join the scheme if your estimated VAT taxable turnover is £1.35 million or less.
Also why should the EU be treated differently than any other of the approx. 200 other foreign countries? I'm sure lots of them have similar tax codes that require tax payment at the location of the customer. Are those countries able to enforce any tax payments from US businesses?
Basically no unless the companies has assets where the tax is due.
http://blogs.telegraph.co.uk/news/danielhannan/100194407/out...
Just because the Swiss are not in the EEA doesn't mean they aren't force to adopt EU policy. Their exports depend on it.
[1] - http://centreforeuropeanreform.blogspot.co.uk/2012/07/britai...
The claim the Norway and Switzerland are governed remotely by the EU is therefore not true - either that, or the Norwegian law somehow pre-empts EU law, and thus complies with it before it is passed? (Which makes it sound like Norway governs the EU, and not the other way around :p).
I'm not claiming that Norway is de-coupled from the EU, just that the claim that it is governed remotely by a body in which it has no say is false.
Some larger Swiss-based companies were actually in favor of this change, because in some cases they have been at a VAT disadvantage relative to some EU-based companies, who were previously allowed to charge "source country" rates rather than "destination country" rates for digital services. Therefore Swiss providers selling to Germans were at a disadvantage to Luxembourg-based providers selling to Germans, because the Swiss provider had to charge German VAT, while the Luxembourg provider could charge the lower Luxembourg VAT. With the new "destination location" rules being applied across the board, including to EU-based companies, Luxembourg will lose its advantage vis-a-vis Switzerland there.
See: http://www.kpmg.com/global/en/issuesandinsights/articlespubl...
a Swiss supplier must charge the VAT rate of the EU
Member State where EU consumers are domiciled or the
services are used and enjoyed
Telecommunications and broadcasting companies, as
well as providers of electronic services to consumers
My British corporation pays an American company for Web hosting. However, the US company does not charge us VAT, so we have to charge ourselves ("reverse charge") the VAT at UK rates and then immediately claim back the VAT as it is used in our VATable supplies. The net result is zero but reverse charging means they get VAT revenue for situations where VAT is not reclaimable (many exist).
Another example is that my British corporation sells services to a, say, French corporation. We charge no VAT on this sale but the French corporation has to then "reverse charge" French VAT on the sale within France (and then claim it back, if valid). We then also have to file this transaction on an "EC Sales List" so that the various authorities can check that the reverse charge did occur.
Reverse charge moves the VAT-paying responsibility from you to your customer in another EU country. The responsibility can only be moved from business to business.
You’ll write an invoice/receipt without VAT (or 0% VAT) and include a text “Reverse charge, VAT directive art. 44” and you are done. In practice the text is often missing, as people re-use the same invoice format they use for non-EU sales.
Even if you mean sales tax, that's set on a state-by-state basis, and you only have to collect sales tax in a state if you have a physical presence there:
https://www.sba.gov/content/collecting-sales-tax-over-intern...
In the US it seems the onus is put on the consumer rather than the business. We should all be declaring our out of state purchases on our tax returns... http://en.wikipedia.org/wiki/Use_tax
More information:
https://www.sba.gov/content/collecting-sales-tax-over-intern...
http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubjec...
One thing I can think of is that you could target the payment processors. They already have personal data about the buyer, so they should know where they are located. Most transactions are going to be done by a credit card processing company, or something like PayPal. In either case, the EU could deal with those sorts of companies directly.
In that case, merchants could sell their goods without worrying about tax at all. You buy something at a listed $100, you have 22% local tax, the credit card company charges the buyer $122, seller doesn't have to worry about it. Now, the seller could program some option that could estimate VAT based on geolocation with some disclaimer that the customer will be charged for VAT by the payment processor and are responsible for their own charges. But that would be a courtesy of the seller, the buyer should be aware of their own VAT.
Some things are excluded from VAT, but they are the exception, and in that case, the seller could jump through some small hoops to register with the payment processors to allow those goods to exclude VAT.
There are still other methods of collecting payment, like bitcoin, like money orders, whatever. In those cases, the law should require the buyer to self-assess. In reality the self-assessment would be rarely followed, and honestly nobody would care if it were small purchases. But the self-assessment rules would mean that anyone seriously gaming the system by avoiding compliant payment processing options could be punished, while still both avoiding an less enforceable situation like trying to punish a foreign company for failure to charge local tax, or limiting the payment options that foreign companies can provide.
This could also solve problems with collecting VAT purchases made from foreign entities (instead of just companies from other EU states) and could even be extended further (You are a resident of Luxembourg, you travel and shop in France, you pay with a credit card, you are charged less VAT on the purchase rather than having to claim the difference when you return.)
In short, compel large payment processors to verify the home of buyers when the account is created, compel them to have some checks to avoid fraud. Allow sellers to not charge VAT if the buyer is either using an approved payment processor, or if the buyer is from another country. If you are accepting payment by cash or money order from someone local, then you must charge VAT at the local rate. But if you are accepting a credit card through an approved processor, whether the buyer is local or foreign, you charge the rate pre-tax, and the processor is required to A) add the appropriate VAT, and B) verify that the buyer is not lying about their home country. If you accept a money order from a foreign country, you do not charge VAT, and the buyer self-assesses.
Alternatively, you could say that all purchases that do not go through an approved processor have the local VAT added to them, and the buyer is compelled to self-asses for the difference, it's just a matter of how much you are willing to inconvenience non-EU foreign countries.
But I don't think the seller should be required to ensure that the buyer abides by their local tax rules. I do think that's a task that can be handled by large banks or payment processors.