How to avoid paying VAT ?

[rokstar]

Hey guys,

Running an ecommerce store and selling mainly in Europe. VAT is hitting us hard on the margins so looking for ways to reduce/avoid it.

Currently operating my business through EU company (I am from Europe) and waiting for EIN on my US LLC to sort out banking and etc.

Currently my idea is:

- US LLC owns the product and receives all payments
- US LLC signs contract with EU company for fulfillment services
- EU Company holds the stock and ships the product

Would a setup like this work or am I missing something?

 

[avalanche]

Hey guys,

Running an ecommerce store and selling mainly in Europe. VAT is hitting us hard on the margins so looking for ways to reduce/avoid it.

Currently operating my business through EU company (I am from Europe) and waiting for EIN on my US LLC to sort out banking and etc.

Currently my idea is:

- US LLC owns the product and receives all payments
- US LLC signs contract with EU company for fulfillment services
- EU Company holds the stock and ships the product

Would a setup like this work or am I missing something?

If you are residing in EU, you are likely to get into trouble for VAT evasion

 

[Sols]

No, that setup would not work if you are resident in EU.

Strictly speaking, you can only avoid VAT on sales to non-VAT registered EU persons by not selling to them at all. Even non-EU companies are required to pay VAT.

In reality, a lot of non-EU companies are selling digital services into the EU without charging and paying VAT. This works fine as long as you don't have any assets within the EU that a local tax authority can lay claim to. But if your US LLC is managed and controlled from within the EU, it's an EU company as far as tax is concerned and you need to pay local tax (corporate tax, and VAT).

Your structure looks like Tax Evasion 101 and won't fly. If your business model can't handle VAT, I think the problem is the business model, not the VAT.

 

[avalanche]

No, that setup would not work if you are resident in EU.

Strictly speaking, you can only avoid VAT on sales to non-VAT registered EU persons by not selling to them at all. Even non-EU companies are required to pay VAT.

In reality, a lot of non-EU companies are selling digital services into the EU without charging and paying VAT. This works fine as long as you don't have any assets within the EU that a local tax authority can lay claim to. But if your US LLC is managed and controlled from within the EU, it's an EU company as far as tax is concerned and you need to pay local tax (corporate tax, and VAT).

Your structure looks like Tax Evasion 101 and won't fly. If your business model can't handle VAT, I think the problem is the business model, not the VAT.

In defense of the guy, VAT is a huge pain in the a*s for us as well. We were thinking of building an online educational startup in Cyprus but we have remote tutors as freelancers which makes all our income VAT-able while all customers are non-EU:
- Because this is the service with necessary human intervention
- VAT is determined by the supplier's country in that case, 19% (regardless of the customer's residency country).

That is just insane and highly uncompetitive for EU jurisdictions that are exporting services to non-EU countries. Paying 19% of all sales is like tax on turnover which is the worst nightmare that can happen to any business where there is competition that has no such tax.

 

[Sols]

In defense of the guy, VAT is a huge pain in the a*s for us as well. We were thinking of building an online educational startup in Cyprus but we have remote tutors as freelancers which makes all our income VAT-able while all customers are non-EU:
- Because this is the service with necessary human intervention
- VAT is determined by the supplier's country in that case, 19% (regardless of the customer's residency country).

That is just insane and highly uncompetitive for EU jurisdictions that are exporting services to non-EU countries. Paying 19% of all sales is like tax on turnover which is the worst nightmare that can happen to any business where there is competition that has no such tax.

I completely understand. VAT is a big pain and unnecessarily complicated, and unfairly attributed to EU businesses given the lax enforcement of sales from non-EU sellers.

My point was VAT shouldn't come as a surprise if you're entering the EU market. It should be in the business plan and financial projections from day 0, like you did in this case.

 

[nomad999]

Crypto can be used to bypass the banking system. You can sell without doing KYC and therefore no VAT.
I would give people like a 5% discount if they use crypto at checkout and redirect them to another payment page belonging to an offshore entity.

A bit shady though and would require a bit of work and investment to make it totaly legal, could be worthwhile in some cases i think.

 

[polonieth]

Crypto can be used to bypass the banking system. You can sell without doing KYC and therefore no VAT.
I would give people like a 5% discount if they use crypto at checkout and redirect them to another payment page belonging to an offshore entity.

A bit shady though and would require a bit of work and investment to make it totaly legal, could be worthwhile in some cases i think.

This is terrible advice. Do you know how many people actually have crypto and spend it day to day?

You'd be setting up an offshore entity for virtually 0% of your customers.

There's a reason no big e-commerce players accept bitcoin. Crypto is not a good means of payment.

 

[nomad999]

This is terrible advice. Do you know how many people actually have crypto and spend it day to day?

You'd be setting up an offshore entity for virtually 0% of your customers.

There's a reason no big e-commerce players accept bitcoin. Crypto is not a good means of payment.

Thats wasnt an advice that was an idea.

Depending on what you sell and your customer base this could be very valuable.
Crypto is going to become more relevant and used every year, those who are in early will be rewarded.

It is not illegal in many juridictions to sell stuff to anonymous buyers and to use crypto, lots of possibilities there ...

 

[Sols]

Crypto can be used to bypass the banking system. You can sell without doing KYC and therefore no VAT.
I would give people like a 5% discount if they use crypto at checkout and redirect them to another payment page belonging to an offshore entity.

A bit shady though and would require a bit of work and investment to make it totaly legal, could be worthwhile in some cases i think.

Tax evasion through crypto is not a solution. It's a crime.

It is not illegal in many juridictions to sell stuff to anonymous buyers and to use crypto, lots of possibilities there ...

Maybe so (for smaller amounts) but it is, however, illegal to evade VAT.

 

[nomad999]

Tax evasion through crypto is not a solution. It's a crime.


Maybe so (for smaller amounts) but it is, however, illegal to evade VAT.

obviously if you deliver physical stuffs that's clearly tax evasion, but for digital stuffs however you are bound to the law of the jurisdiction you sell from and so not necessary illegal. Correct me if I am wrong.

 

[polonieth]

Thats wasnt an advice that was an idea.

Depending on what you sell and your customer base this could be very valuable.
Crypto is going to become more relevant and used every year, those who are in early will be rewarded.

It is not illegal in many juridictions to sell stuff to anonymous buyers and to use crypto, lots of possibilities there ...

It is never going to be used to buy random stuff on the internet though. It doesn't work well for that purpose.

Nobody accepts it, if you were going to be rewarded by getting on board early, big sites would be doing it now. Overclockers did it, and got plenty PR, now "Company accepts bitcoin" is not newsworthy.

 

[Sols]

obviously if you deliver physical stuffs that's clearly tax evasion, but for digital stuffs however you are bound to the law of the jurisdiction you sell from and so not necessary illegal. Correct me if I am wrong.

VAT isn't something customers pay merchants. It's something merchants pay the government, and charge the government for. If you sell something for value X and that transaction has VAT scope, you have to pay VAT on X. It doesn't matter if the customer pays you in cash, by credit card, or cryptocurrency.

So if you sell something for 120 EUR and it's subject to 20% VAT, you cannot ask the customer to give you 100 EUR worth of bitcoin and call it a day. You still have a record of a sale of something for 100 EUR, for which you must now pay the government 20% VAT.

 

[nomad999]

VAT isn't something customers pay merchants. It's something merchants pay the government, and charge the government for. If you sell something for value X and that transaction has VAT scope, you have to pay VAT on X. It doesn't matter if the customer pays you in cash, by credit card, or cryptocurrency.

So if you sell something for 120 EUR and it's subject to 20% VAT, you cannot ask the customer to give you 100 EUR worth of bitcoin and call it a day. You still have a record of a sale of something for 100 EUR, for which you must now pay the government 20% VAT.

My point was, if a jurisdiction allows you to sell without KYC and to use crypto then there is legally no VAT.
VAT can be enforced because of the banking system and the KYC associated with it.

I think this is interesting for certain use case when it comes to digital stuffs, am I crazy or ?

I know people are not using crypto that much yet, but this could change fast.

 

[Sols]

My point was, if a jurisdiction allows you to sell without KYC and to use crypto then there is legally no VAT.
VAT can be enforced because of the banking system and the KYC associated with it.

I think this is interesting for certain use case when it comes to digital stuffs, am I crazy or ?

I don't want to say you're crazy, but I think you may need a little more experience with how accounting works for a business. Your solution just wouldn't work out when it comes time to do accounting and audits. The sale of crypto is a different transaction. The seller still needs to record the sale and payment for the sale.

The solution you propose has a number of pitfalls and there are tax laws written specifically against it. Doesn't matter if it's crypto or not. Things like BEPS (Base Erosion Profit Sharing), transfer pricing, and just plain and simple anti-tax evasion regulations.

If there was a way to legally avoid VAT by paying via crypto, everyone would be doing it already. And if that were to happen, regulators would react quickly and amend the laws.

 

[nomad999]

I don't want to say you're crazy, but I think you may need a little more experience with how accounting works for a business. Your solution just wouldn't work out when it comes time to do accounting and audits. The sale of crypto is a different transaction. The seller still needs to record the sale and payment for the sale.

The solution you propose has a number of pitfalls and there are tax laws written specifically against it. Doesn't matter if it's crypto or not. Things like BEPS (Base Erosion Profit Sharing), transfer pricing, and just plain and simple anti-tax evasion regulations.

If there was a way to legally avoid VAT by paying via crypto, everyone would be doing it already. And if that were to happen, regulators would react quickly and amend the laws.

I was just throwing this out there as a possible way out, I don't believe there is any legal way of avoiding VAT in the OP case. I may be a newbi on this but I am a grown up and I know how VAT works

Now obviously I was talking of an offshore tax-haven juridiction like Seychelles maybe Panama or such with little to no audit requirement.
actually I don't think accounting and audit would be an issue, I asked an accountant about using crypto without using a bank account for the company and they said it would be ok, a very reputable accountant for that juridiction that wouldn't take any risk and that requires audit.

So that led me to believe that, putting aside the issue of CFC and co, it could be doable to redirect people before checkout to another entity to pay in crypto and doing so legally like in my initial example or simply just using only crypto.

I am considering doing something like this but still a lot to figure out.

 

[Makkikun]

I also believe that there is no legal way to circumvent the payment of VAT, especially in the European Union, if you want to work legally ...

 

[Clip]

If we are talking about big amounts, own a US LLC or Singapore/HK company with a nominee and make that company sell the online services. You repatriate the profits as dividends that pays less tax than salary in Europe.

 

[bru1234]

If we are talking about big amounts, own a US LLC or Singapore/HK company with a nominee and make that company sell the online services. You repatriate the profits as dividends that pays less tax than salary in Europe.

he is willing to avoid VAT and Taxes, and with this way of working he won't avoid VAT.
My opinion is, that if everyone tries not to pay anything, how will a state run?
Paying less taxes is comprehensive. Trying not to pay any vat or tax is just a crime to my eyes :/

 

[minotari]

I don't know how to avoid VAT. But why don't you increase your prices for the customers who incurrs VAT, by the amount of VAT? And be upfront with them about it.

"Boddy, you're from EU, and therefore I'll have to pay VAT, therefore, a price for you will increase by 21%".

 

[Clip]

he is willing to avoid VAT and Taxes, and with this way of working he won't avoid VAT.
My opinion is, that if everyone tries not to pay anything, how will a state run?
Paying less taxes is comprehensive. Trying not to pay any vat or tax is just a crime to my eyes :/

HK, Singapore and US don't have VAT for digital services online