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ECommerce's VAT Nightmare

By Sharon Housley
Expert Author
Article Date: 2003-10-23

As many of you are aware, changes have been made to VAT taxes by the European Union. These changes go into effect July 1, 2003. Most people don't really care a whole lot, but simply want to know how the changes will affect them and their business.

Most developers will not need to do anything, others may need to make some decisions. The tax requests voluntary compliance for non-EU countries. If you use an online registration service they may or may not choose to voluntary comply, but regardless of the decision in most cases they are a reseller of your products and would be the ones responsible should any action be taken.

The EU does not have jurisdiction over non-EU companies so its unclear how they intend to enforce compliance, more than likely why the law is written requesting "voluntary compliance". If you process orders directly through a merchant account to companies in the EU you will need to make a decision about whether you wish to comply. If you are located in the EU you benefit from the tax and can be forced to comply.

If your business operates outside of the EU you should talk to your accountant and determine what course of action you should take with regards to the collection of VAT. If you business is located within the EU there is a threshold of I believe $ 100,000, meaning if you sell less than that you are not required to comply. Its unclear as to whether this threshold exists for non-EU companies.

In a quick survey of registration services, some have opted to voluntary comply others have chosen not to. Some of the unanswered questions are:

Will my product now cost more or less than a competitor using a different registration service?

If I decide to voluntary comply for direct orders how do I track the various percentages for the 17 countries involved?

Where and how do I submit and what about exchange rates?

Is the EU just hoping people comply and seeing the funds as pennies from heaven?

There is no simple answer, in short the new implementation of VAT is a nightmare for small businesses and many are struggling with what "voluntary compliance" really means.

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About the Author:
Sharon Housley manages marketing for FeedForAll software for creating, editing, publishing RSS feeds and podcasts. In addition Sharon manages marketing for FeedForDev an RSS component for developers.

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