Dec 29, 2014

New EU VAT Rules: How Will This Affect Pattern Sellers And Buyers Worldwide

From January 1st 2015, how the EU will treat tax on digital sales is changing. This will have repercussions for EU buyers and sellers, as well as for sellers of digital goods (digital patterns, eBooks...) all over the world. You can find out more about VAT MOSS here.

Up to December 31st 2014, small businesses based in the EU and selling under a certain threshold (€35,000 in Ireland, £81,000 in the UK, €100,000 in France...) did not have to register for VAT(Value Added Tax), therefore they did not have to charge VAT to their customers.

From January 1st, the above rule does not change for sales within a seller's own country or from a seller located in Europe to a buyer outside of the EU.

To make things easier (NOT!), there are currently 28 EU member countries and each EU country comes with its own VAT rate (varying between 8% and 27%), which is why the new VATMOSS system is being implemented.

Don't take me wrong, I don't mind paying for VAT (well, I do, but if I must, I'd rather be legit about the taxes I owe), but if I register for VATMOSS, I must pay VAT for the sales of digital products I do within Ireland as well (which according to Irish law, being under (well under!) the VAT threshold, I shouldn't have to pay), as there doesn't seem to be a possibility of opting out of one's own country.

Normally, small businesses like mine selling via a platform like Craftsy, Etsy and Ravelry shouldn't have to worry about the new VAT rule since the law states that it is the platform that is responsible for VATreturns in the relevant countries, but unfortunately I haven't found any statement from Craftsy whereas Etsy stated that they are in the process of developping a tools to help sellers that should be ready in early 2015, until then (and I have to assume after that too), sellers have to take responsibility for the new VAT rule; I suspect that their tools may just be something to help sellers block buyers from the EU from buying certain items (which would be a disaster for Etsy's EU customers, who hopefully won't take this lying down!).

Ravelry and Love Knitting are doing something about this: by teaming up together, they are allowing Ravelry designers to upload their designs to Love Knitting, which will collect and pay VAT on behalf of the individual sellers.

The only options I can see for in order to comply with this contradictory law, is to stop selling my knitting patterns on Craftsy and Etsy for now, as these two seem not to be aware or really care about the fact that all sellers including those outside Europe have to pay the EU VAT rate of the country in which the buyer is located - who knows? Etsy might see the light when they lose out on all the listing fees that stop coming their way, since lately they showed how they seem to only understand the language of $$!.

I am still awaiting instructions from Ravelry on the process of importing my knitting patterns to Love Knitting, but as far as understand from all my reading, there will be no change for buyers located outside the EU (as well as those located in the same EU country as a EU seller), as they will still be able to purchase through Ravelry at the same price as before. Buyers located in the EU (if in a different EU country than the seller) will be redirected to Love Knitting in order to complete their purchases, which will be taxed at the relevant VAT rate.

For all pattern sales from an EU country to another EU country, the customer will have to pay more, as the relevant VAT rate will be added to the inital pattern cost: this does not mean that designers will be getting more money, as the added VAT amount will eventually be paid to the country where the buyer is located.

I am still hoping that the EU authorities will come to their senses and either introduce a new -  common to all EU countries -  threshold for digital sales, or agree on one low tax rate that is the same in all EU countries, because this new rule which was introduced in order to combat big companies setting up in low tax locations in order to avoid paying high tax rates is ultimately hurting small businesses (who can't afford an accountant to handle the extra paperwork) AND their customers more than corporations that can well afford all the extra paperwork and probably won't need to hire an extra accountant to make sure they're tax compliant).

All this to explain why from January 2015, you may not find my patterns available for sale on Craftsy or Etsy (well, at least not until I know and I am happy with what is this mysterious new tool Etsy is working on), but you will still be able to purchase them through Ravelry, but if you are in the EU (Ireland not included), it may take some time to have my patterns listed on Love Knitting as I haven't got them accepted there yet.

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