Vat - Bytesized Hosting Wiki

tl;dr VAT is charged, not by the company you are getting a service or product from but your government; the companies are only servicing your government by collecting the money for them.

Over the past few years I noticed that there is a lot of misconceptions about the "Value Added Tax" or VAT. I wanted to take some time to explain exactly what VAT is and why you in some cases have to pay it. In this PSA I will mainly focus on the European Union rules since that's what I know. I am however in no means a tax specialist so please feel free to correct me if I'm wrong.

This is is mainly written for EU citizens but might interest others as well.

VAT is a consumer tax added to products and services. Each registered company in the EU that deals with consumers (not businesses) in the EU need to charge t (the consumers) local VAT amount on top of their baseline prices. Each EU country gets to determine their own VAT percentage as long as it adheres to the EU rules which determine a few things such as the minimal amount of VAT a country needs to charge (15%). The Dutch VAT for instance is 21% where as Hungary has to pay 27%. When you buy something in a local brick and mortar store in your own country you probably won't even notice the VAT amount since it's always included in the price.

However for digital services this is a lot harder. The EU decided at one point that digital services need to charge the VAT amount of the country of residence of the customer. This means that showing the price including the VAT is almost impossible. That's why for digital services, such as mine, the VAT is only displayed once you actually signed up and register your country of residence. Once every month or quarter the businesses you deal with need to pay out the collected VAT to the countries from whom they collected the VAT. They payout all the collected VAT, eg. from Denmark to the Danish government, French VAT goes to France etc. This brings me to a very important point and one that a lot of people seem to miss: businesses only collect to the VAT in name of your country of residence.

This is not extra money they are earning from you. They are simply helping your country collect taxes, nothing more. US companies don't have to charge EU VAT and US consumers also don't have to pay EU VAT.

Warning: (Personal) Opinion time

I feel that there should be international rules about VAT. Right now it seems that the EU VAT gives US companies an unfair advantages since the bottom line is that they are usually at least 20% cheaper for EU citizens. I also get a lot of people who "Don't want to pay VAT". Do understand that the country you live in is made possible by taxes. The taxes pay for your roads, your health care system and so that you and your parents before you get to have a pension one day. Our modern societies thrive on tax, please consider that before you try to cheat your way out of VAT.

End: (Personal) Opinion time