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Changes to tax/VAT rules for EU Customers

January 15th, 2015

closeThis post was published 4 years 9 months 2 days ago which means the content may no longer be applicable or relevant to the service we offer today. If in doubt, please contact us.

As of 1st January 2015, changes to EU tax law dictates that hosting providers worldwide, by law, need to charge VAT to consumers based within the EU.

To try and give you some background to the tax/VAT situation from our perspective; ThisWebHost is and has been a UK registered company for several years now. Traditionally within the UK, if your business meets a certain income threshold, you are required to charge a 20% tax (called VAT) on all services sold to consumers within the UK. We are still a relatively small company and fortunately for our UK customers, our UK sales did not meet this minimum income threshold, so we were not required to register for VAT or charge the necessary 20% tax. Most of our business is to US customers, and VAT is not applicable to them. Simply put; up until this year we did not charge tax to anyone because we didn’t have to.

Fast forward to January 1st of this year, and the laws have now changed. The law now says that regardless of your income threshold (more on this later), VAT must be charged to EU consumers at the VAT rate of the customers country. For example, currently in the Netherlands there is a 21% VAT rate. This means that as of January 1st 2015, we must charge an additional 21% tax on all services we provide to consumers within the Netherlands. This is not optional and we are required by law to do this. Within the EU there are many countries that charge VAT, and these rates differ from country to country. We are forced to comply with these new laws and charge the appropriate VAT rate to consumers within these countries.

Fortunately for consumers based within the UK, we still remain under the UK income VAT threshold for registration. This means that our UK consumers will currently not be charged VAT and will not have to pay the additional 20% tax. I cannot disclose exactly how much under this threshold we are, but it is likely to be a long time (years) before we are required to do so. Once we do meet this threshold, the 20% VAT will need to be charged in accordance with these new rules. Again, this is unlikely to happen for a very long time, but it is something to consider in the future.

To recap; as of January 1st 2015, all customers within the EU will be charged VAT at the rate of their country of residence on all invoices from us. Customers within the UK will not have to pay this tax.

Q. Does ThisWebHost have to do this because it is UK registered, or because the UK is within the EU?
No – it is irrelevant that we are registered within the UK. To clarify, all companies selling digital services to EU consumers must follow these new laws.  Even companies based in the US must charge VAT to consumers based within the EU. There is no exception to this law, and it doesn’t matter where the company is based.

Q. I am a customer in the US, or outside of the EU – do I have to worry about this?
No, these changes do not affect you at all and you do not need to worry about this. This new change to the law only affects consumers based within the EU.

Q. I am a VAT registered business within the EU – do I need to pay this extra tax?
As a VAT registered business within the EU you will be exempt from this tax. In order to validate your exemption status, you need to provide us with your VAT registration number. You can do this from within our client area by clicking ‘Update your Details’ and entering your VAT registration number in the box at the bottom of the page. The page will check and validate your number, and if successful future invoices will be exempt from this VAT.

If you do not provide us with your VAT registration number, you will be required to pay tax on your invoices with us. There is no exception to this. If you are in fact VAT registered but do not provide us with your VAT registration number, you will be able to reclaim any VAT paid to us through your appropriate VAT return.

Q. I am a consumer based within the UK – do I have to pay this tax?
No. At this present time we are under the UK minimum income threshold and will not be charging consumers within the UK VAT.

Q. I am a consumer within the EU – do I have to pay this tax?
Unfortunately yes. All consumers within the EU (excluding those in the UK) must pay this tax. The tax will be charged at the VAT rate within your country and added to your next invoice(s) with us.

On a more personal note, we naturally disagree with these new laws and believe that they are significantly unfair to smaller businesses such as ours. Though we may disagree, we are of course legally obliged to follow them and ensure that we remain compliant at all times. We are deeply sorry that some of our EU consumers will see an approximate 20% increase to their hosting costs with us as a result of these new EU tax changes. Unfortunately, we simply cannot absorb this increase and must pass it on to our consumers.

It should be noted that this is certainly not a price increase and should not be interpreted as such. This new tax, though paid to us from our EU consumers, is paid back to your home country every quarter. We do not see a single penny of income from this tax, and on the contrary – through the increased administration and accountancy involved in record keeping for this new tax change, we are actually very likely to lose money as a result.

As always, if you have any questions, comments or concerns about this change, please feel free to discuss this blog post with us via the comments section below or through a support ticket within our client area.

What do you think?