International Indirect Tax question

[Audiojack999]

Hi, I'd be very grateful if someone could enlighten me on a little issue.

I'm a UK sole trader, that's about to open an e-commerce website where people can purchase digital services ( audio and video production).

Anyone could enter the website and buy from anywhere in the world, so technically the sales could be international.

Now... I have to setup how much tax, and which tax will be charged automatically on the invoices based on the client's billing address. As far as I understand it if a UK based client buys from me and I'm below the UK VAT threshold that means that I do not register for VAT, If I'm not registered I should not collect it. Does that mean that the UK client will have 0% Tax added to his invoice?

And what about international clients? I have no "nexus", in any other country, just the website. Should they pay 0% tax too? And if that's not the case and you do have to charge something how do you figure that out and transfer the money you collected on behalf of that nation to them?

Am I overthinking this? Any help is appreciated

 

[Scalloway]

For the EU you should register for VAT MOSS

https://www.gov.uk/guidance/register-and-use-the-vat-mini-one-stop-shop

 

[Audiojack999]

Thanks for the link and the explanation. Do you know how it works if the clients are based in the US?

 

[Scalloway]

I had a quick google on the subject of digital downloads in the and it appears to vary from state to state. More information here.

https://blog.taxjar.com/sales-tax-digital-products/

 

[Bob Morgan]

Thanks for the link and the explanation. Do you know how it works if the clients are based in the US?

Don't go there for Scalloway's reason above! - It should actually be referred to as The FORMER United States! A joy to behold when you get down to the County and City Level! - They even have 'Cities' with populations of less than 2,000!

 

[Audiojack999]

Alright, I checked different pages on taxjar and other sources and this is what I've found out, correct me If I'm wrong. If you're UK based you can: Sell to UK clients without charging vat until the 85.000 threshold, easy. You can sell to EU clients but if you do you will have to voluntarily register for UK VAT (even if under 85.000) and then register for Union VAT MOSS (which will be affected after Brexit anyway). You can also sell to US Clients. No UK VAT is charged in the US as it's "Outside the scope of UK VAT" but you COULD have to collect US Sales tax depending on your "Nexus" with each state. My Nexus is only the "economic nexus", BUT in reality, I don't actually have to collect any sales tax because even if there is a Nexus, each US state has a THRESHOLD that you need to surpass to actually be forced to collect the sales tax, and that usually is (100-200 transactions per calendar year in each state), (100.000 Revenue in each state). So in conclusion, the economic nexus makes me liable for Sales Tax, but being under the threshold of each state I actually don't have to do it. Did I miss anything?

 

[AbsoluteVAT]

Have you also considered the rules in other non-EU countries? In the last 4/5 years, a huge number of countries have implemented rules which could potentially require you to register/remit VAT/GST.

Most of these rules capture B2C sales, but B2B also in some countries. Some have quite generous thresholds, other have zero!

Happy to help.

 

[Spur Support Services]

I don't think your overthinking, I think you are considering a tax risk head on.
I like to think about Kipling's honest serving men (What, Why, When, How, Where and Who)
"Where" your VAT/sales tax responsibilities lie will to some extent be reliant on the "what" you are selling and the "who" you are selling to.

In the early stages, I would suggest setting up a number of tax codes within your accounting software for both B2B (business to business) and B2C (business to customer), to deal with sales in each jurisdiction, including one for each EU country, and then configuring your e-commerce platform to assign the appropriate tax code based on client billing address and B2B/B2C type. (I am assuming that your accounting and e-commerce platforms integrate as I think this will be fairly key for you).

This will allow you to have full visibility of your VAT/GST risk location, which will give you strong control and remove the cost risk of a tax expert having to retrospectively analyse the income at a later date.

You need to understand "what" your product/services are classified as and that really means clearly defining your product/service and then considering how those are treated in each country (for example VATPOSS13550 may include your product/service for UK/EU purposes). When considering the "where" for your "what" look at the UK Place of Supply rules within "VAT Notice 741A". Different jurisdictions will have similar rules, although there may be key differences.

PwC has some publicly available international tax summaries with the VAT/GST overview for each country included in "Other Taxes". It doesn't go into much detail but could give you an indicator of problem areas that you need to research in more detail. (Google search "PwC Worldwide Tax Summaries")

Consider the value of the level of the tax risk in each jurisdiction (the tax cost if you misinterpret the rules) and whether that risk level justifies you the costs of asking a VAT/GST expert in that geographical area to formally review your situation. Review this risk assessment periodically as your plans and operations grow.

Finally, I think your post is a great example of your approach to taxation. Download your post and the responses and keep it as evidence that you tried to do the right thing.