Avoiding complicated EU VAT rules for SaaS company
I am in the UK and am in the process of setting up a SaaS product which people will be able to purchase online by monthly subscription.
I have been researching the VAT rules for supply of electronic goods to countries other than the UK and unless I'm reading them incorrectly, the rules seem absurdly complicated!
For example, it seems that the rules are different depending upon whether my customer will be using it for business or personal use (how will I know!?) and what country they're in. If they're in an EU member state then I need to charge VAT at their rate, not the UK rate, etc, etc, etc.
To be honest, I could do without these complications! Are there any legal ways of simplifying this? Would offshoring help? Would it be enough to host the service from a server in the US (or something)!?
I have no problem with the concept of paying tax (to an extent), but I also want to keep my application as simple to run and use (with a simple pricing structure and sign-up process for my clients) as possible.
Thanks!
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"If they're in an EU member state then I need to charge VAT at their rate" - Incorrect, you charge VAT at the UK rate. – Ryan 12 years ago
2 Answers
For example, it seems that the rules are different depending upon whether my customer will be using it for business or personal use (how will I know!?) and what country they're in. If they're in an EU member state then I need to charge VAT at their rate, not the UK rate, etc, etc, etc.Yes, that is correct. The part of the customer using it for personal or business use is easy, if they provide a VAT ID, it's business... otherwise you consider it for personal use.
There is no way to avoid this... that's why big companies opened an European branch in Ireland or Luxembourg. Even if you incorporated your business outside the EU (in USA for example) and your client resides in the EU, you should charge VAT (I know there are a bunch of US businesses that don't do that but all big players do).
As long as your client is inside the EU, there is no way out. If you client lives in a country that doesn't belong to the EU, he will be exempt.
Some links that may help:
http://www.eurovat.com/faq.htm http://en.wikipedia.org/wiki/Taxation_of_Digital_Goods, check "Overview of Internet Taxation in the European Union"
Hope it helps.
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Thanks for the reply. I just can't believe it's so complicated! I thought the point of the EU was to simplify trade, now I have to track getting on for 30 different sets of VAT rules (one for each member state of the EU)!? Blimey! What about selling to US customers - do I charge UK VAT? Do I need to know about any US taxes!? Thanks again! – Chris Roberts 12 years ago
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Chris, no... if your client resides outside the EU, you don't charge VAT. VAT is only applicable if clients are in the EU and don't provide a VAT ID. I agree with you, the EU was to simplify but the leaders messed up :) – Rui 12 years ago
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It is quite easy. Sale to business = VAT ID = no issue, Reverse charge, they ay in their country. Private user, you charge YOUR VAT unless you rvolume is larger than a threshhold to their country per year, then you register in the country and charge the target VAT. Still quite trivial. OR you use a reselling site that buys from you and sells forward, so you never deal wi hthe end customer. – Net Tecture 12 years ago
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Thanks guys - most helpful. NetTecture - you should write your summary as an answer so it could get voted on! Thanks anyway! :o) – Chris Roberts 12 years ago
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The article from Wikipedia about distance selling applies to distance selling of goods, not services. – Lukeshek 12 years ago
I run a company in the UK that sells on-line services to customers in the EU. I know your question is a bit old, but when I found it, I thought I might have been wrong and decided to make some research on VAT when selling services throughout the EU. I presume you already might have some experience in this topic, but anyway... The rules are actually not that complicated.
- If you sell e-services to customers within the EU who are not VAT-registered, you pay VAT in the UK only (unless you don't have to pay VAT at all).
- If you sell e-services to customers within the EU who are VAT-registered, then you don't have to pay VAT in the UK at all, and your customers (most likely businesses) have to pay the VAT in their countries instead.
- Although you don't have to pay VAT on services sold to EU businesses, you can voluntarily register for VAT in other EU countries, if you want to.
- If you ship goods to EU countries, you normally have to pay VAT in the UK (if applicable), unless you reach a certain threshold (€35.000).
- You will have to pay VAT in the country where you sell your services, if you sell the services to a company that doesn't have an establishment in the country where the services are received. For example: your website offers on-line navigation services which are used by people from a German company on their business trip to Poland, where the German company doesn't have its establishment. If you sold them your services, you would break the Polish law.
- If you sell services to customers from outside the EU, you don't pay VAT in the UK at all, and you're obliged to pay the tax in the country where the services are delivered to and vice versa.
Here you can find more information:
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/vat_on_services/index_en.htm And an interesting article on VAT between the UK and Poland (but you can apply the very same rules to any other country in the EU): http://www.brighton-accountants.com/blog/vat-uk-poland/ ADDED ON 28.03.2012:
I just want to add that I called the Ministry of Finance in my home country (Poland), and confirmed that the information above is correct.
