Not to forget the other half of the story: issuing invoices.
In Europe this can quickly become a pain, not only due to the extra information you need to collect (names, addresses and so on) but especially if you also need to collect Value Added Tax (VAT). This means asking for VAT IDs for companies - if they have them - and then calculating the tax based on whether the customer is in the same country as you or not. The complexity can rapidly descend into madness.
I have the added fun of having to issue bilingual invoices written in both Polish and English. Well, they could be only in Polish, but then the majority of people wouldn't understand them.
In the end, I bought a ready-made solution (http://nbill.co.uk/) which, whilst not being one of the most intuitive pieces of software I've ever used, gets the job done.
Oh, VAT, how I hate you so! You'd think if the tax authorities were going to saddle us all with worrying about other countries' VAT rules, they could at least provide a list of the ISO country codes and applicable tax rates we need to charge in a format that could easily be imported into a database. Some sort of simple automatic notification system for when the rules change would be useful too. At least that way, every small business in the known universe wouldn't have to write the same bunch of SQL after looking up the same details when they eventually found the same web pages, and then worry forever afterwards that something had changed and they didn't know and would wind up inadvertently committing tax fraud or something.
So I sell a simple SaaS service and asked my accountant one question.
Do I charge VAT. Here is his reply:
"
Vat rules
You need to identify B2B and B2C UK, EC and outside EC customers.
A vat registration number is usually accepted as evidence of B2B.
1 All sales outside the EC have no vat implications and are ‘outside the scope of vat’.
2 All sales to UK customers (B2B and B2C) have UK vat to apply to them and are standard rated.
3 All B2B sales to EC customers have no vat and are ‘outside the scope of UK vat’.
4 All B2C sales to EC customers have UK vat to apply to them and are standard rated.
There is a further twist.
If you can identify where your service is effectively used/enjoyed, then
If the place of supply would be the UK (2&4) but the service is enjoyed outside the EC, then no vat (outside the scope)
or
If the place of supply would be outside EC (1) but the service is enjoyed in the UK, then UK vat applies."
All B2B sales to EC customers have no vat and are ‘outside the scope of UK vat’.
Interesting. I was under the impression that EC B2B sales were zero-rated only for companies that are VAT-registered. This is why we grab and validate a VAT number for each EC company that we issue an invoice for.
That said, God only knows how this might tie into the living hell which is Polish bureaucracy.
You need to be able to prove that the purchase is B2B rather than B2C, and the easiest way of doing that is to get the buyer's VAT number. You could still do B2B without a VAT number, but you need to be able to prove that the buyer was a business if the tax man asks about it.
The problem is that the VAT you need to charge does not only depend on where you're located and where your business partner is located, but also on the goods/services provided and on wether the partner is a business or a person and maybe even the moon phase and the current water level of the north sea. You can't just create a lookup table, you have to implement the actual rules.
This is complex if you're selling a lot of different goods/services that may be different VAT rated, or enter into complex contract. But for companies dealing only with simple uniform stuff that's sold at the full VAT rate, it is very straightforward, and thankfully that makes up a substantial proportion of businesses.
The EU-based businesses I've handled billing for have processed a few tens of millions without ever worrying following more rules than these:
* Outside the EEA? If yes, no VAT. Done.
* Got a VAT registration number? No VAT. Done
* Otherwise, apply current standard VAT rate (20% in the UK)
Of course, I have had the "luxury" of not dealing with any products that have other VAT rates applied. But even then, for a UK seller of products it's generally sufficient to mark the products with a VAT category and apply a lookup in the last case to determine which of the handful of rates applies.
There may certainly be edge-cases where this meant we ended up overcharging VAT of customers, but nobody goes to jail for that.
If you provide B2B services with complex contracts it certainly can get quite hairy, but that can get hairy in the US and elsewhere too.
Beyond this, the only extremely vital things to consider in Europe when it comes to invoicing that seems to regularly confound US developers (and some European developers too):
* Invoices don't change. Ever. No really. And that means storing a copy of the invoice as it was presented to the user rather than dynamically regenerating it from a template that might later change.
* Specific phrases or wording and rounding rules tends to apply depending on the country you provide the service in. But this is rarely harder than getting your accountant to approve a suitable template.
You can't just create a lookup table, you have to implement the actual rules.
In general, that may be true, though certainly in some cases a look-up table seems to be sufficient. Even in more complicated cases you still typically need the same information about tax rates to start with, you just need a bunch more business logic on top.
In any case, if the tax authorities who are experts on the rules can't find a way to codify and explain them to small businesses, surely it's self-evident that the rules are too complicated for non-expert small businesses to work with and should be replaced with something fit for purpose?
> In any case, if the tax authorities who are experts on the rules can't find a way to codify and explain them to small businesses, surely it's self-evident that the rules are too complicated for non-expert small businesses to work with and should be replaced with something fit for purpose?
Full ack. Still, that's the current state. To make matters worse, those rules are subject to change and open to interpretation.
Example:
We just did an ElasticSearch training for a members of a german company that sits in Hamburg. However, the contract was via an austrian consulting company and we were just the subcontractors. Now, the question of wether we have to pay vat or not hinges around the question of that austrian company does have a german branch office or not. The first thing our tax accountant did was grab the folder with tax laws and read up on what could possibly declared as a "branch office". Is a permanent representative enough or not? Go, codify that.
The UK isn't as bad as the US, which brings the (often unknown) customer's location (present, domicile or claimed?), the (set of all) vendor locations, and the classification of the good under some all-encompassing system in to play as additional variables.
In Europe this can quickly become a pain, not only due to the extra information you need to collect (names, addresses and so on) but especially if you also need to collect Value Added Tax (VAT). This means asking for VAT IDs for companies - if they have them - and then calculating the tax based on whether the customer is in the same country as you or not. The complexity can rapidly descend into madness.
I have the added fun of having to issue bilingual invoices written in both Polish and English. Well, they could be only in Polish, but then the majority of people wouldn't understand them.
In the end, I bought a ready-made solution (http://nbill.co.uk/) which, whilst not being one of the most intuitive pieces of software I've ever used, gets the job done.