I’ve got a few hosting accounts with US-based hosting providers. I’ve noticed that some are charging VAT (because I’m based in the EU) whilst others don’t. Given that EU tax authorities have no jurisdiction over US companies and have limited recourse against those that choose not to collect VAT, I was wondering how common it is for US companies to voluntarily sign-up to EU VAT directives. The cost difference is about 20% which is not insignificant.
Its becoming more common here in New Zealand too for GST (our version of VAT). Some overseas websites are starting to charge it (Mainly larger sites). Its 15% here, but you feel it when your buying EUR or USD.
I think the NZ Govt has been working on legislation, I don’t know how they expect to monitor it?
Although GST is an end user tax here, so you claim it back, I assume VAT is the same for registered businesses?
I’ve noticed this more and more with various services outside the EU. For example, Backblaze used to be a straight $5 then a couple years ago they started charging VAT as well because I am in the UK. More often than not I think it is down to whoever they are using for billing and whatever their take is on compliance.
It’s a strange situation all round. It seems some web hosts in the US feel that they are legally obliged by law to collect EU VAT. When I contacted one of my web hosts (who don’t charge VAT) for an explanation, they told me that the EU have absolutely no jurisdiction over US corporations or the services they offer. Therefore, they have chosen not to become unpaid tax collectors for foreign governments. Certainly, their legal advisors have informed them that the service is being provided in the USA and isn’t something that is being shipped to a foreign country. Even if it were, the imposition of VAT in the EU is a supply chain tax that is imposed on the importer at the point of entry, or upon the consumer directly. So, there is no compulsion for the web host to register for VAT in the EU, or to collect VAT tax. Their view is that it would be a huge administrative burden on the company to comply with the EU directive and, as such, they won’t be implementing the imposition of VAT on their clients until such time as the US government compels them to do so under statute of law in the US.
When I asked the same question of another web host, who does charge VAT, their view was that they are legally obliged to collect VAT even though they are a company registered and operating in Texas. Furthermore, they charge a 21% rate of VAT which adds quite a big amount to their bill.
I’ve now decided to cancel all my web host contracts that involve VAT and move them all to the company that doesn’t charge. The company even did the migration of all my client sites free of charge. This company’s charges for the same hosting packages are less than a quarter of the existing host and the first year is half price - so, I guess it pays to shop around!!!
I would agree with all of that, except that it probably falls foul of EU VAT for digital services and I believe there is some sort of reciprocal arrangement with the US on that point. Technically though that would not be your problem as it is incumbent on the seller.
For hosting I use a UK based company and it suits me fine, but one of the reasons I did this was because I noticed the EU tried another ruse via GDPR, taking a pop at web hosting based outside the EU. Given that I also supply hosting to web clients it’s one less thing to worry about by keeping it UK based.
Regarding the company that does charge VAT, that should still only be at the rate set by the country of the buyer at time of purchase, so in the UK that would be 20%. To give you an idea of how ridiculous this gets if you are on a rolling 30 day contract that auto renews they should theoretically check your location and ask for confirmation before assessing VAT rates prior to every renewal.
An acquaintance of mine was a top accountant for many years before retiring more recently and he was involved in the liquidation of Lehman brothers. When I asked him about EU VAT he told me it was the most stupid piece of tax legislation he had seen in 30 years and to stay well away from it.
I sell an eBook online through a US based billing company and they absolutely charge EU VAT on sales made to customers within the EU. By going through the billing company it is no longer my problem, but it has increased my costs dramatically.
I understand the need for UK/EU businesses having to register for and collect VAT from their UK/EU clients - that’s a legal obligation right across the EU. But, if you were selling your services to a non-EU client, you are not obliged to account for VAT - your sale would be considered an export. With digital products that involve delivery (albeit via download) I can understand that would be subject to VAT as the consumer is physically importing the product to his/her computer. Even so, there is no legal obligation for a non-UK/EU company to charge the VAT - its a voluntary thing at the moment.
With US companies, there is no reciprocal arrangement with the EU - The US doesn’t have a VAT system. That would be like the USA asking non-EU suppliers to collect State Sales Taxes and hand it over to the US State where the consumer lives. As things stand at the moment, US States are responsible for collecting Sales Taxes from the consumers over whom they have jurisdictional control.
But, web hosting outside the UK/EU is a somewhat different thing to supplying a digital product that can be downloaded to a consumer’s computer. You can’t physically download your hosting - only the content it contains which you put up there in the first place.
I think even the EU and certainly HMRC in the UK have understood the unenforcability of VAT collection from suppliers outside the EU sphere of control. In one of their recent reports, HMRC highlighted the difficulties in forcing non-EU suppliers to register for and collect VAT. Even Amazon (who do collect VAT on the products they import and hold in their EU distribution centres), stated that they had no legal mandate to force their non EU resellers to collect VAT payments - they could only advise them and then would only take down the reseller from their site if HMRC had served a formal notice against the supplier. To date, only 27 such notices have been served. Furthermore, HMRC made it quite clear that bringing legal action against such suppliers would be expensive, time consuming and with no guarantee that prosecutions would be successful.
There is currently talk within EU circles of forcing banks and payment processors to automatically deduct VAT from all payments processed on behalf of foreign suppliers who are supplying to clients in the EU. They intend to do that whether VAT has been charged or not. This would obviously mean the supplier getting less money from their sales if VAT has not been included in the price. It will be interesting to see how that idea gets accepted outside of the EU. It may simply lead to non-EU suppliers refusing orders and returning funds to the payment processor or bank. Once consumers start seeing the hassle they will face in getting the VAT portion of their purchase price back, I think there will be an uprising of the masses against European governments that implemented this daft bit of legislation. I think your friend’s accountant was quite right in his assertion regarding the stupidity of the legislation. What is the point of having legislation if there is no cross-border mechanism for enforcing it - crazy or what!!!
I had a quick look for NZ, it looks like the law is already active…
GST on cross-border supplies of remote services...... non-resident suppliers to register and return GST on these supplies if they exceed, or are expected to exceed, NZ$60,000 in a 12-month period.
Cross-border supplies of remote services includes digital products.
I have no idea how they expect to police this.
Precisely, There has to be some sort of international agreement to make this happen. At the moment, there isn’t.
It goes on to say for “remote services” supplied to a registered person who is undertaking a taxable activity the item can be zero rated for GST.
Ummm so the only way that could work is if the supplier asked a question on payment - “Are you GST registered”.
I could be misunderstanding this, but man that’s weird.
I could only image the EU is more complicated.
My hosting is offshore, and I put it through my books as Zero Rated. They are not charging me GST… yet!
The EU VAT on digital downloads and services is basically applied to automated services that do not require manual involvement. In the case of a website build like we do obviously there is a huge amount of manual involvement, but web hosting is probably an automated process where you pick your package, choose your payment method and a couple minutes later receive your automated login.
The real danger of EU VAT if you attempt to collect it yourself if that you are liable to audits from all 27 member states and if the tax authorities in Poland or Malta decide to fine you good look getting any help from HMRC.
In a nutshell it’s all the work of madmen and I decided early on to stay well clear of it all. Nevertheless, I think it’s an abomination. There is a zero turnover threshold and most small sellers end up paying it themselves to avoid mass cart abandonment.
They came out with some other nonsense recently where banks were demanding all sorts from small traders who were selling online and billing directly. I remember some guy on the Rapidweaver forums going into meltdown over it all.
As for the Americans I suspect certain large companies like Backblaze might simply choose to charge VAT and pass it on, figuring that even if they are not liable it could save them from an awful lot of scrutiny in other areas as well.
The devil in me thinks I should test the system. If I started selling the guys in NZ and chose not to register for GST, I wonder what would happen? I suppose they could prosecute me in NZ, but I’m not sure if the courts in NZ would feel they had jurisdiction over a foreign business. But, assuming they did and the prosecution was successful, how would they go about enforcing it? I guess they could obtain an international arrest warrant and have it served here in Spain. The problem is, it isn’t a crime in Spain to fail to collect GST in NZ, let alone register for GST. So, the arrest warrant would be torn up and that would be the end of the matter - such a crazy idea.
I guess the big struggle is most of these laws pre-date the age of digital services.
For physical products coming into a country, customs can charge a duty & GST. Which they do, here in NZ it used to be for anything over $1000. I think it’s somewhere around $60 now. But of course not everything gets stopped.
How do they expect to police a digital service / software? No Govt likes to see money and services/products changing hands without a cut of the pie lol .
If you feel bad about not paying GST in NZ @hendon52, just send me the 20% (well 15% in NZ), I will make sure the right people get it.
Spain has traditionally been the location of British ex-pats hoping to avoid extradition. There is also Brazil if things get a bit hot I suppose. I cannot imagine the sums involved for web hosting would be great enough to warrant any great concerns on your part though.
I remember a few years ago buying a vintage Longines watch from a US seller. It was made before VAT ever existed and sold from a Swiss company to the US market, yet when it came to me in the UK as a used vintage item I was made to pay 20% VAT before they would release it from customs. Effectively if they think they can take your money they will.
Ouch! A bit steep for essentially a second hand item!! I feel your pain.
Yes, Spain was a jurisdiction where people could avoid extradition, but since joining the EU, no longer possible because of the commonality of legislation across the EU - including the UK. My web development business is actually based in Gibraltar (recently moved it from Cyprus). The problem there is that most countries view Gibraltar as being part of the EU. Of course, it isn’t - its alignment to EU rules and regulations stems from its links with the UK. The really annoying thing is there is no VAT in Gibraltar. No way to register and no way to collect. But it doesn’t stop some international companies from adding the VAT anyway - go figure.
I think governments have most businesses cowed into submission through a mixture of complex tax codes and draconian fines, so the assumption is that you should always apply tax just to avoid feeling any heat from the authorities. Nobody wants an expensive and time consuming legal battle where the opposition is judge, jury and executioner.
@hendon52 that had me curious, I had no idea Gibraltar was a territory of the UK.
Especially if your system is like ours (and probably is, because we got it from you).
Laws are created and then defined in court. We had a big bunch of health and safety laws created a few years ago, every company is paranoid, no one wants to be the first one prosecuted as the test case to define the laws.