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EU Considers Taxes on Crowdfunding

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EU Considers Taxes on Crowdfunding
Photo by Stefan Sweihofer/Pixabay

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.

4 thoughts on “EU Considers Taxes on Crowdfunding

  1. Jon Smirl says:

    Minority Report is here, instead of pre-crime EU wants to have pre-tax! This will blow up the entire model of crowdfunding being a donation. If crowdfunding in the EU is legally classified as pre-sales, that will be the end of crowdfunding in the EU since everyone will drown under all of the lawyers attacking everything.

    I would much rather see a law requiring the umbrella sites (KS, Indie) to guarantee that crowdfunded items pass all safety regulations. For example, if you hook to the mains you have to have UL/CE approvals. Then make the umbrella site (KS/Indie) responsible for checking that these approvals are in place before allowing shipment.

  2. commenter1 says:

    First rule of government: If it moves, tax it.
    Second rule: If it still moves, regulate it.
    Third rule: If it stops moving, subsidize it.

  3. Arhur Krolman says:

    The headline in my MakerPro email this morning said: “EU Considers Crowdfunding Taxes”.

    Crowdfunding for taxes! Great idea, I thought. Government needs tax donations to build a super useful new public bridge or school? Appeal to the taxpayers with a crowdfunding campaign! Alas, this isn’t what they have in mind. Headline corrected here I see.

  4. Rahere says:

    Because of the risk element, the taxation of financing is probably illegal under the basic premises of the Tax. Businesses are quite used to challenging their Governments on such matters and very often win. If there is finally an output, then that can be taxed. The entrepreneur has to keep a reserve.

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Alasdair Allan is a scientist, author, hacker and tinkerer, who is spending a lot of his time thinking about the Internet of Things. In the past he has mesh networked the Moscone Center, caused a U.S. Senate hearing, and contributed to the detection of what was—at the time—the most distant object yet discovered.

View more articles by Alasdair Allan
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