New EU Regulations For Value Added Tax

Regulations for value added tax changed within the European Union last week on 1 July 2021 and here is what it means to you in the Sentti & Tuuma webshop.

Value Added Tax

What’s Value Added Tax (VAT) (fi. arvonlisävero, sv. mervärdesskatt)? It’s tax on consumer goods and it varies depending on type of goods, with products such as food and books usually being taxed lower than say craft items.

Countries may set their own tax percentages within the EU, but regulations involving commerce are shared by all.

VAT-MOSS Origins In Sales Of Digital Goods

Up until now you may have stumbled upon VAT-MOSS, VAT mini-one stop shop, as it’s been called occasionally, in relation to digital goods like PDF patterns.

Instead of charging VAT according to percentage in the seller’s country, since 1 January 2015 the regulation changed to being set according to the buyer’s VAT percentage.

For example a seller in Germany would no longer charge (product price) + (19 % VAT) if selling a digital product to a customer in Finland, but would instead charge (product price) + (24 % VAT).

For this reason some people outside of the EU stopped selling to us EU members, or they started using commerce platforms, which created built-in ways to organise the collection of EU tax and distribution to correct EU countries.

The VAT-MOSS system allowed a firm to pay one tax chunk of money quarterly into one local bank account, instead of paying to all EU countries separately, which is both smart and a huge relief.

VAT Charged By Buyer Country

The same VAT-MOSS system is extended per this month and now applies to any commerce online.

One can opt out and keep selling according to shop-base country tax (in our case 24 %) if in two consecutive years revenue would remain under 10.000 €. It’s pretty risky if a firm hovers close to the limit, though, because I’m not sure anyone has a great idea yet of how to deal with the situation where up until 10.000 € there have been collections of 24 %, but once the amount grows past it, what then? Retroactive payments? Refunds? Ugh.

So if a firm opts in like I’m doing with my sole proprietorship (fi. toiminimi, sv. firma), from 1 July it’s actually cheaper for you to buy in the Sentti & Tuuma webshop, provided you live in a country with lower tax, such as 19 % in Germany.

If you’re located in high-VAT countries like Sweden and Denmark, unfortunately you’ll have to pay a little bit more due to the one-percent difference in relation to Finland.

Seeing The Right Prices

Lol, so, website backend. *slight groan* It took me a while to figure out how to ensure a customer will see the correct product price when browsing the webshop instead of prices without tax, then slammed with VAT in the Basket only.

Imagine your budget is 50 € and getting a cold shower of having 9,50 € (19 %) or 12,50 € (25 %) added at checkout. Not nice. With a budget of 100 € it’s 19 € and 25 € respectively. A nuisance none of us needs.

I’ve added taxes for all EU countries in the backend to let the system know what your local VAT is. But that’s not enough. How will it know which rate to use when showing you prices? IP address.

I’ve started using a service called MaxMind for this purpose only and no data is collected beyond the scope of comparing your location to the tax tables. MaxMind puts an IP address database on the website and updates it irregularly, so there’s a chance you might still see the wrong tax calculation until you enter a billing and shipping address. The difference is vastly smaller compared to if there’s 0 % as a starting point though.

Caveat: For those of you, who use something to mask your IP address like Tor, this most likely won’t work. You’re reading on your sofa in the Netherlands, but showing up from some place like Thailand, Brazil or Canada—all 0 % VAT countries.

So let’s look at a practical example before ending this discussion: what costs 18 € in Finland (24 %) now costs 17,27 € for Germans (19 %) or 18,15 € for Swedes (25 %). The percentages apply not only to the goods sold, but shipping as well.

Questions? Go ahead!