EU Considers Taxes on Crowdfunding

Last month the European Union made a decision regarding the Value Added Tax (VAT), a tax comparable to sales tax in the US, that has widespread implications, but hasn’t yet gathered much coverage, or discussion, outside of the specialist press. A review of the liability to VAT for crowdfunding activities concluded that VAT should be due on reward-based crowdfunding projects.

While not legally binding on member states, the conclusions of the EU VAT Committee are generally followed by national tax authorities. So soon, at least in government terms, this could be law in some, most, or all, EU member states.

What this means is that if you provide goods or services as part of a crowdfunding campaign you will need to include VAT in the reward cost — the standard rate of VAT in the UK and throughout the EU is 20% although some goods are excluded — and this will be payable to the tax authorities when you as a project creator receive funds. While equity crowdfunding falls somewhat outside the scope of the decision, if the rights to intellectual property is involved, all bets may be off.

This is bad enough if you’re based inside the EU, but the implications for campaigns that cross borders are fairly dreadful.

Already burdened by variable shipping costs, project creators suddenly become liable for the collection of taxes for foreign governments. Backers, already burdened by “surprise” import duties as their rewards enter their country, may end up paying taxes on goods they never receive. If a project fails without delivering rewards the money due for tax has already disappeared.

While it might not mean the demise of crowdfunding inside the EU, it will discourage project creators, and make the economics of reward-based crowdfunding far less attractive.