We all saw it coming, but we looked for some kind of miracle. Miracle never happened.
(The Secret of my success)
You may not even know it, but if you sell digital goods on the internet in 2015 you are affected by new tax laws. That is, if you have a single customer in the EU. Germany, Denmark, Spain, the UK, Poland – there are plenty of places. A market of roughly 500 million people.
You are affected! Deal with it!
These new laws require you to collect VAT (value added tax) from each non-business customer and pay it to the country of residence of your customer. Sounds complicated? Trust me, it is!
We got at least 6 ways to address the problem, but unless you live outside the EU member states, you should probably comply eventually. (If you are based in Sri Lanka or the US, lucky you – even though technically you must participate in this madness, who is going to make you? Probably nobody. But perhaps it becomes part of TTIP? Who knows!)
Bringing in UX
The biggest challenge for implementing the new VAT rules lies in user experience (UX). How do you implement all regulations while still maintaining good conversion rates and preventing your customers from cancelling the process out of frustration?
The new rules are few. If you are selling to customers outside the EU states, nothing changes. If you are selling to businesses (VAT-registered) inside the EU, things stay the same as well. No need to add VAT. But for private citizens, the ones who dread complicated checkout procedures, you need to jump through several hoops.
- Determine if your customer is from a EU member state.
- Collect two independent pieces of evidence they are really from that member state. You may use IP address (hello VPN and corporate lunch-break shoppers), billing address, location of the bank, country code of SIM card, and location of the fixed phone line (if they still own one, that is).
- Show the final sales price to the customer. I am not sure whether you must already tell them how much VAT is included at this stage. Probably not.
- In some member states customers must receive a simplified invoice, stating the details of their purchase, including the VAT amount charged.
- Keep this evidence for at least 10 (!!!) years.
Let’s leave out the fact that every quarter you must declare how much VAT you collected and pay it out to the (now) 28 member states, that is what MOSS will hopefully help with. Again, theoretically everyone on this planet must do that, if they sell to Europeans.
I have left out all business sense, just focused on UX until here. Of course, you might not be willing to have varying margins on your product just because the EU is crazy. The alternative would be to have significantly varying prices across all of the EU. Keeping things simple I assume you always charge the same amount from everyone, only your share is best for businesses and customers from Hungary (27% VAT) pay significantly less than people from Luxemburg (17%).
I also left out the nitty-gritty details of determining the exact tax rate, updating tax percentages in your system when they change, whether purchases take place from inside a plane (tax-free) or on the ground (see this nice list to understand how to charge VAT on a train from Buxelles to Warsaw) – the typical tax nightmares you pretty much had to deal with in 2014 as well. Well, now you need to worry about an additional 27 states, with a plethora of rules and regulations. Let’s keep things simple for now.
The devil in the details
To illustrate things, and because I am a visual thinker, I have created a small flow chart what I think (no guarantees, this might still be missing the most important aspects as I am in no way a tax accountant) covers the basic approach.
You can see what a mess the flow is for anyone resident in the EU. Also, what about those pesky Europeans on a trip overseas willing to purchase something? Actually we also need to check requests from the US, because if they come from European citizens we need to show them how much VAT they pay. Or, if you prefer the hard way, show a different price.
Hence, before we can show a price to website visitor we need to ask them several questions. Imagine going into a store and asking how much the chair is and they ask you where you’re from. Charging the Hungarian more than the German sounds like discrimination? Because it is. But it seems to be intended by the EU commission, so I am all for fighting these stupid tax laws. In the short-term it appears we must comply, or else risk mighty high fines.
What should we do?
Coming back to UX. I recently tried to do some research on technical implementations and I was shocked that less than a month from those laws becoming effective there are no good solutions available. Because the community is quite large I looked at WordPress in more detail as I know many content marketers based their business on both digital downloads and WordPress. Again, most solutions pretend that there is no need to address this complex requirement.
I think it is time to discuss approaches to design UX for small shops and startups that complies with the laws of 2015. Any pointers to existing UX approaches are greatly appreciated in the comments. A clever bunch like the start-up scene must be able to come up with a way to jump through this ridiculous hoop.