Non-EU small businesses with heavy investment in the digital realm are anxiously awaiting the imminent arrival of the EU New Value Added Taxes (VATs) in 2015. Instead of paying taxes in the country from which a given product is sold, businesses will soon face varying EU VATs in each country of purchase. The legislation applies to online classes, downloads and the like, and has sparked significant controversy in this digital age.
The 28 EU member countries are comprised of 75 different VATs, according to a recent Guardian article ‘New EU VAT regulations could threaten micro businesses’. Obviously, the administrative implications for this are extensive as sellers are expected to register for VATs individually for each sale. On the bright side, at least potentially, businesses will have the option of registering for the VAT Mini One Stop Shop (VAT MOSS). The One Stop Shop offers a single platform for VAT registration, but it also requires quarterly updates and its functionality may still prove frustrating for affected businesses.
While large web companies are faced with the same regulation, the financial implications can be absorbed more easily than by startups and small businesses. According to a TechCrunch article by Mike Butcher—in response to the new EU VAT legislation—the UK is petitioning to get small businesses an ‘exemption’ from this new form of imposed bureaucracy. Ironically, Butcher also notes the same governments that offered support and inducements to attract startups are now punishing those businesses who answered their call.
In the U.K., HM Revenue & Customs acknowledges that SMEs worldwide will be directly influenced by the new legislation, and as evidenced by the media noise, as the new year approaches many remain unhappy about the implications. Some of this associated anxiety may be misplaced as the aforementioned Guardian article cites the possibility that certain marketplaces (such as app stores) will soak up VAT responsibilities for many small businesses, lessening the extent of the administrative burden.
At this point, regardless of the predictions, January 1st, 2015 will see these changes implemented. Should SMEs, out of principle or as a business decision, choose not to pay EU VATs to each respective country and also to decline the VAT MOSS, the only option left is to avoid selling in the EU altogether. This option is bleakest of all, and to small tech businesses in particular, signifies a major step backwards.