A new law comes into effect on January 1st regarding VAT to be paid on digitally delivered items. While this new EU law was designed to try and pull the likes of Apple and Amazon into line when paying the correct taxes, it actually affects very small businesses like us in a huge way. Over the past few days we've seen countless people online talking about pulling down their Bandcamp pages and stopping trading and sadly closing their businesses. Ironically pushing more business in the direction of the big companies.
The main reason for the problems (beyond either charging more for a product or taking the hit ourselves) is the paperwork required to meet all the relevant tax laws in each individual EU country. For a small label like us, the workload doesn't seem possible right now. It looks like Bandcamp have fronted up and will actually handle the tax themselves... so users would still pay more than they currently do but the artist/label wouldn't have to worry about the paperwork. Unfortunately this isn't the case with our host for the Gizeh Online Store.
After spending the past two days reading various articles and forums and pondering which direction to take, it seems like there is naturally a huge amount of resistance to the new law. There are petitions going around and it's a mass of confusion. In addition, it seems EU VAT will extend to all physical products from 2016.
It goes without saying that we do not want to break the law so in light of these new regulations we have currently suspended all strictly digital sales on the store while we figure out what the best move is for the future in the coming weeks. We don't want to do anything drastic which things still seems quite unstable. To counter this move we have reduced the price of many CD's which include a FREE instant download (not subject to the new tax) so you can now buy the CD and get the download for less than buying simply the download from iTunes etc. We have also made a bunch of releases free of charge for the time being.
We really hope you will continue to support what we do and stay tuned for more updates in the coming weeks.
Below you can read more about the new law in detail via Change.org and also sign their petition to exempt small businesses from this crippling new measure.
PLEASE SIGN THIS PETITION to call for THE EUROPEAN COMMISSION to unilaterally suspend the introduction of the new EU VAT laws for micro businesses and sole-traders, which if allowed to come into force will unfairly disadvantage the EU’s smallest businesses.
The new EU VAT regulations coming into force on 1 Jan 2015 change the way in which VAT (consumer tax) is charged on digital services - instead of the tax rate being applied according to where the supplier is located, the seller must determine where the buyer is located and apply the relevant local rate of tax to the purchaser. So that means if you live in Italy and someone in Germany purchases your digital file, you need to pay VAT at the German rate to the German authorities. Just to be clear, that's a total of 75 different tax rates across 28 different markets!
This may sound like a simple change on the face of it but, make no mistake, this will bring corporate levels of regulation and administration not just to the Boardrooms, but also to the kitchen tables of sole-traders. Hundreds of thousands of the smallest businesses simply cannot comply with this law and are faced with a stark choice at the end of this month – either to close their cherished businesses or to break the law. That is not a reasonable choice to force them to make.
Whilst the majority of us support the intention of this new legislation, designed to put a stop to billions of euros of the consumer tax being lost due to multi-nationals locating in low tax jurisdictions, the implementation of these rules will cripple, and potentially force into closure, hundreds of thousands of micro-businesses across the EU. The costs in paperwork, bureaucracy, and amendments to websites and payment processing will simply mean that many businesses are no longer viable.
Not concerned because you sell physical products rather than digital services? This is just the first wave of legislation - YOU are next in the EU’s sights. Similar rules are planned to extend to all products as early as 2016, eradicating any distance selling thresholds you currently enjoy.
The European Commission argues that this will create a level playing field because means that sellers will no longer be able to unfairly undercut by businesses by locating themselves in another EU member state with a lower VAT rate – but in reality it will unfairly disadvantage the EU’s smallest companies; creating a divide between the multi-national companies who can afford to comply with this complex and archaic piece of legislation and those sole-traders and micro-businesses that simply can’t.
Still don’t think this affects you because you aren’t a business owner? Not only will the range of products available for you to buy be greatly diminished, but the information collected by those businesses that do survive needs to be retained for 10 years - creating a huge data security risk for us all. Where currently you only have to worry about your payment provider/card handler storing your personal data, going forward millions of small businesses across the world will now have a requirement to do so.
The opportunities offered by the digital economy have been a lifeline to hundreds of thousands of people: mothers, carers, chronically ill, people with disabilities, retirees and so on, who would otherwise not be able to go out to work in a traditional pattern and have created flourishing and innovative businesses from their kitchen tables. What The EU Commission doesn’t seem to recognise is that closing this avenue of business will crush the microbusiness community - in the process costing governments far more in welfare payments than the small amount of consumer tax they would ever raise from these businesses!
At a time when the European Commission is trying to lower trade barriers for the world's largest businesses, they are putting up trade barriers for the smallest ones, thereby stifling innovation and creativity in small start-ups who could be leading the way and taking advantages of new opportunities in a growing digital market place.
We need the EU to realise the impact of these new regulations before it is too late and they have completely destroyed the EU’s sole-trader and micro-business community.