FSAddon stoppt Verkauf: EU gefährdet Add-On Entwickler!

FSAddon closes down online shop – EU threatens flightsim developers!

New EU VAT-regulation is coming in 2015

On 1 January 2015, a new EU ruling concerning value-added tax (VAT) on telecommunications, broadcasting & electronic services comes into force. It should ensure more fairness in the EU-wide VAT distribution but tremendously affects small one-man-businesses or startups as they commonly exist in the flightsim community. Francois Dumas effectively closed his FSAddon online store yesterday facing the expenditure connected with the new regulation. What you need to know about regulation number 1042 /2013 can be found in this article.

Rules applicable until the end of 2014

Until the end of 2014, the following ruling for selling digitallly distributed products like music, movies, and games remains in effect: The EU-business must charge his customers the VAT-rate applying in the country where the seller is registered. A small example: FSAddon is registered in the Netherlands. When somebody living in the European Union buys a product, the company must charge him 21% VAT –  the dutch rate. Conceding the customer would have choosen a shop  in Germany where 19% VAT applies to any kind of product, the price would have been lower.

Multinational groups like Amazon or Apple mainly have their EU-branches in country with very low VAT-rates like Luxembourg or Ireland and channel their profits around other countries (Germany, France, and the UK). It works this way: When somebody from Germany buys a digital product, say an eBook, via Amazon, the order will be processed from Luxembourg. This means the customer effectively purchased his product from Luxembourg, even if he’s living in Germany and will read his eBook in his home country. Amazon thus have the ability to offer lower prices as there are only 3% VAT charged on eBooks in Luxembourg, compared to 19% in Germany.
That’s called tax avoidance and is great for low-VAT-rate countries as there are thousands of enterprises registered in Luxembourg where they charge the low rates – this sums up to some quite nice tax revenues for the tax havens. In contrast, countries with higher rates as the UK, Germany or France do not even see a cent from the companies’ income worth millions of Euros. In addition, small startups in say Italy do have a disadvantage in competition compared to the larger groups. The new regulation which was voted for in 2008 is meant to change this unfair VAT distribution.

The new rules – VAT-rate depends on where the customer lives

From 2015 on, telecommunications, broadcasting and electronic services will always be taxed in the country where the customer belongs. It works this way: Assuming FSAddon (which is registered as a company in the Netherlands) sells a product to a customer living in Germany; he must charge the 19% VAT applying there. In case the buyer is from Spain, it would be 18%, 25% for customers in Denmark, 27% in Hungary and nothing if the buyer lives outside the EU. Before the new regulation, FSAddon would have charged 21% on every order of EU-customers which is way easier than setting up a system changing the rate depending on the country the buyer belongs to.
But there’s another point: If a customer living outside the EU, say in the United States, buys a product which is “effectively used & enjoyed in an EU country, that country can decide to levy VAT”. Say a guy from the US buys a MP3 album for his holiday trip in the UK and the UK government decides to levy VAT, the seller must charge his customer the 20% VAT applying to the UK. Sounds complicated? It certainly is. And when companies violate this new regulation, they may face high penalties.

In theory, businesses operating outside the EU must charge VAT for their EU customers as well and redirect it to the countries – this is also included in the old regulation expiring in 2014. But in fact, so company charges VAT as the European Union can’t force them to do so because of missing international legislation. Needless to say sellers in the US or Australia have an advantage as they offer lower prices to their EU customers than EU companies can.

What is a Mini-One-Stop-Shop (MOSS)?

With the new VAT ruling, an EU-business selling digital products to customers in other EU-countries  is liable to sales tax in every (!) EU-member-state where his buyers live and thus would be required to submit a tax return in all those countries. As this is very complicated, the European Union sets up a so called Mini-One-Stop-Shop (MOSS). There is a MOSS in every EU-country so the company must hand in just one tax return including information about the sales made in any specific EU-country and about where the customers live. MOSS (effectively the country where the company is registered) will redirect the TAX income to the other EU-members. In addition, each company is required to save customer-information for ten years meeting the EU privacy policy commitments.

How does it affect the developers?

To make it short: The workload will increase due to the new shop-system and the much more complicated tax return. But the EU-regulation is not only very time consuming, it costs money as well. For instance, the digital infrastructure saving customer data is quite expensive and many small developers or startups are unable to afford this. As a consequence of this, Francois Dumas from FSAddon closed his own silvercloud store and will distribute download products via large retailers (simMarket, Aerosoft) only. They got enough accountants and money to meet the new EU-requirements. Please notice the ruling does not affect physical products like CDs or DVDs, thus a DVD-only store from FSAddon will open shortly. But in modern times, digital sales represent the majority of income in the FS-community and the retailers also charge commission which lowers the earnings of smaller companies even more. There is a petition on change.org demanding exceptions for startups and one-man-businesses as the new regulation represents a huge burden for them.

How does it affect me?

It is quite likely more small developers will follow and shut down their online stores. Eventually, many products may be available via large publishers only. Furthermore, digital products (especially outside the FS-community, for example streaming or communication services like Spotify and Skype and music/movie downloads) may get a little more expensive depending on the country you live in.

You can find further information on the EU commission page.