VAT rules crippling online entrepreneurs

Current online VAT rules are driving small businesses into the ground and must be updated urgently, writes Vicky Ford.

By Vicky Ford

22 May 2015

If Europe is to prosper and grow we must support small businesses and make sure that the single market is fit for purpose in a digital age.

We often hear talk of the 'unintended consequences' of regulation on businesses and consumers. Nowhere is this more visible than the impact that new rules for VAT collection have had on microbusinesses.

At the end of last year, VAT rules were changed so that it is charged at the rate where the buyer lives, not where the seller is located. This was intended to tackle the problem of large multinationals like Amazon not paying significant VAT due to their being based in low tax member states.


Unfortunately back in 2006 when the rules were agreed, no one foresaw the rapid and dramatic growth of the online marketplace and the opportunities for millions of tiny businesses. 

The ability to sell eBooks, patterns, guides and videos via the internet has unlocked huge benefits for creators across Europe - one-man and often one-woman companies could sell their content easily. 

But the new VAT rules mean these micro-operators now face crippling bureaucracy and costs.

A recent survey of 2000 small companies says a quarter now block overseas sales through geoblocking and a fifth have stopped selling altogether. They are no longer earning money, so authorities are collecting no tax at all. 

This cannot possibly be compatible with our desires as legislators to drive growth, encourage competitiveness and restore our public finances to a more healthy state.

The issue was debated in the parliament chamber in Strasbourg. MEPs from all political groups and across Europe called for urgent action to be taken to help microenterprises.

The easiest and practical way to solve the problem is to introduce a threshold or an exemption below which a company would not have to deal with cross border VAT. 

The commission proposed this a decade ago, and is making the same suggestion now. 

This will require approval by all 28 finance ministers. I hope they don't wait - for many of these online entrepreneurs, next year will be too late.


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