EU confirms VAT on crowdfunding

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**reds8n**

http://www.vatlive.com/european-news/eu-confirms-vat-on-crowdfunding/

The EU’s VAT Committee has published its new review of the liability to VAT of crowdfunding activities, which included confirmation that VAT is due on reward-based crowdfunding projects.

While not binding on EU member states, the conclusions of the Committee are highly influential, and are typically followed by national tax authorities’.

European Commission (EC) concerns on crowdfunding

The EC referred the VAT issue to the Committee in April. It was particularly concerned with the highly popular practice of ‘rewards crowdfunding’ where the public can contribute funds in return for products or services, still to be developed by the fundraiser. Recent rewards projects have included software development, films and a range of consumer products that are offered free or at a significant discount to crowdfunding investors.

Committee concludes VAT due on rewards crowdfunding

The key conclusions of the VAT Committee were:

Goods or services promised to investors in exchange for their funds in crowdfunding campaigns are liable to VAT as a taxable transaction
VAT due on funding will be payable to the tax authorities when the cash is received
Where investors receive shares, bonds or debt in the campaign, there is no VAT due – although a participation in future profits from intellectual property rights will be subject to VAT
The services of crowdfunding platforms that provide fundraising services to entrepreneurs are within the scope of VAT

The VAT Committee’s conclusion may spring a tax liability on unprepared crowdfunding projects and make the economics far less attractive. Many projects will now have to register for VAT to process and report the liabilities.

**Polonius**

Well... so much for EU friendly kickstarters!

**richred_uk**

Any EU-based miniatures company that wasn't declaring their KS income (well their EU based income) for VAT was crazy - I'd be amazed if any authority didn't consider it fell under the scope of VAT.

As regards EU-friendly projects, I think Polonius has mis-understood the term - essentially they mean that the customer won't be separately assessed for VAT as the goods will ship from within the EU - that can still be the case - VAT is assessed differently to US Sales tax - as a consumer it is (usually) contained in the ticket price of an item, rather than being assessed separately at the point of purchase. What's been ruled on here is whether it should be paid by the company (and of course essentially the end consumer) as part of the pledge level price (only on pledgers that are within the EU btw). Consumers won't be hit on any past pledges as a result of this.

EDIT: oh and it has zero effects on US campaigns shipping to the EU.

**nkelsch**

So at worst, Campaigns which originate out of the EU will have increased pledges due to VAT... And technically US backers could ask for a VAT refund or they could have cheaper pledge points for US backers.

Is that right?

I don't see this as much of an issue as most KS seem to be US based and people won't touch indegogo or other stuff with a 10 foot pole it seems.

**Polonius**

richred_uk wrote:
Any EU-based miniatures company that wasn't declaring their KS income (well their EU based income) for VAT was crazy - I'd be amazed if any authority didn't consider it fell under the scope of VAT.

As regards EU-friendly projects, I think Polonius has mis-understood the term - essentially they mean that the customer won't be separately assessed for VAT as the goods will ship from within the EU - that can still be the case - VAT is assessed differently to US Sales tax - as a consumer it is (usually) contained in the ticket price of an item, rather than being assessed separately at the point of purchase. What's been ruled on here is whether it should be paid by the company (and of course essentially the end consumer) as part of the pledge level price (only on pledgers that are within the EU btw). Consumers won't be hit on any past pledges as a result of this.

EDIT: oh and it has zero effects on US campaigns shipping to the EU.

Ah, thanks for the clarification. For some reason I thought it meant that rewards shipped to EU customers would need to have VAT added, which of course is how a sales tax, and not a VAT, operates.

**RiTides**

Yeah shouldn't really affect US based campaigns, and I think richred is right that EU-based ones should have already been ready for this / already operating this way, as that's pretty much their system!

**Gashrog**

Polonius wrote:

For some reason I thought it meant that rewards shipped to EU customers would need to have VAT added, which of course is how a sales tax, and not a VAT, operates.

Actually that *is* how it works. If something is purchased outside the EU and then brought into the EU then VAT must be paid by the importer, be they an EU based business or a private citizen. That has always been the case and is unaffected by this ruling. At least by law, in practice it only applies if customs check the parcel or you get audited by the inland revenue.

**RiTides**

That's the point though - there is no change for companies outside the EU (that policy was in place already). And for ones in the EU, they likely were needing to assume this was the case, anyway.

I do think the VAT fees on imported items (in general) is kind of intense, though... it's already expensive buying things from abroad and paying for shipping! It seems pretty random too on whether or not people have to pay a ton of money to pick up their packages from the post office, or not.

Would also seem to discourage buying things from outside the EU a bit (not sure if that's the point, or just getting a bit more government revenue)... but again none of that is new, this really just clarifies what people likely would have been assuming all along for EU-based Kickstarters / companies.

**leopard**

Less of a problem with the VAT, tend to make that back with the currency differences and not paying third parties mark ups. Problem tends to be the swinging fee the couriers and Royal Mail want to charge for the 'handling' of the import duties, which of course then further have VAT added.

Doesn't surprise me the ruling went this way, a government in effect being asked if it thought a tax should apply, now let me think how that will be answered...

**OrlandotheTechnicoloured**

EU friendly is still going to be a big deal,

as well as VAT on the pledge amount (rather than nominal 'manufacturing costs') which this now confirms we have to pay (not that I ever believed differently)

for goods being send to individual pledgers there is also the fees charged by whatever postal service or courier handles the delivery which can be a flat fee, (Royal Mail in the UK charges £8/$13) or perhaps a % (FedEx charges 2.5% up to £12/$18)

plus the inconvenience/delay caused by this (and I know folks in Germany etc have to negotiate in person with customs if the project organiser hasn't included an invoice the right format)

Far, far easier for a project organiser to charge us the appropriate extra vat, import the whole lot in a container (handing over said VAT to the government), then send it out from within the EU meaning we avoid the above hassle

(and if the reward is big/heavy it will cost us less in shipping too)