From a Hong Kong perspective Europeans regulations and administrative pressure are unbearable, the last news about the changes in VAT treatments are welcomed as it will necessarily put once again a free economy on the map. So, Hong Kong and other low tax jurisdictions are ready to onboard new clients.
Chinese and other Non-European traders selling in Europe are in a European point of view accused of abuse and even fraud by not paying VAT, achieving higher profit margins than European entrepreneurs, who do pay VAT abiding to more efficient controls.
Starting July 2021, the situation is supposed to change with the implementation of stricter controls in order to officially regain 7 billion of VAT, part of the 150 billion alleged fraud.
- The VAT exemption for low-value shipments will disappear and in principle every delivery in which the goods are imported into the EU will be taxed with VAT.
- The new VAT rules affect operators of electronic interfaces (online platforms or marketplaces such as Amazon). As of 1 July 2021, such operators must pay the VAT due on certain sales of goods facilitated via their interface.
- The European based E-commerce could choose (or be obliged to) to adopt the IOSS for the declaration and reporting of VAT on distance sales of goods shipped from third countries, if not:
- It would be to logistics service providers (such as postal operators and express carriers) to collect and remit import VAT in the name and on behalf of the customer. They must collect VAT from the customer, declare it and pay it on a monthly basis.
- Last but not least the last few VAT “avoiders” will be caught in 2024 with the involvement of payment providers in the process (PayPal, Stripe etc..).
Why is this bad for the European digital economy?
Online platforms and market places will without any doubts enforce the new rules, governments are claiming that this would allow a fair competition and enhance the Intra-Europe e-commerce business. Clients will have to pay higher prices for their purchases.
- With higher costs some Non-European traders will revisit their costs, when loosing up to 20% of your margin you should renegotiate terms and conditions with your business partners, so its likely to see difficult negotiations about media buying and fulfilment costs.
- Some trader will have to pivot their businesses, getting out of platforms and market places to privilege own and operated websites, not only to avoid VAT but more effectively to avoid the constraints of European famous administration.
- To enforce these new rules on drop shippers Europe should erect very efficient customs offices, enabling to charge and perceive VAT on the correct value (good luck) without stopping the entry of goods too long, so many shipments and such a low number of customs officers makes it impossible.
- The VAT net will de facto focus on traders with a European presence, for many it would be easier to leave Europe and to leave to customs and shipping agent the difficulty to charge and perceive VAT.
Why is this SUPER BAD for the European Economy?
- The small traders are young and innovative individuals, the are working on a very difficult environment with low chances of success, any additional constraint will impact them greatly.
- When confronted to alternatives between high administrative tasks jurisdictions and an easier and less intensive environment with low taxes if the business is succeeding, an easy choice is on the table, the smaller traders are pushed out Europe.
- The choice to be near production facilities is quite logical as it’s the only material element of the business, the rest is immaterial (marketing, media buying, coding) being located in or near China is then a logical step.
- Part of the small traders of Today are the big employers of Tomorrow, Europe is pushing out a generation of entrepreneurs and future tax payers.
Governments and advisors are ignoring the DNA of most of these small traders, ignoring their qualities, fears and opportunities.
Nobody is trapped in his/her country of birth, most of these businesses don’t even need an office location. Business partners are located worldwide, freelancers and other agents are paid by apps.
Small traders are more concerned by administrative complexities than by taxes, they evolve in a very dynamic and high demanding environment and would prefer focusing on media buying instead of accounting. They are legitimate entrepreneurs and have fears to be accused on wrongdoings, if and only if, they are successful.
The world is small, small traders are welcomed everywhere as they bring businesses, purchase power and future taxes. They know these facts; they are ready to move.
Hong Kong is welcoming small traders and has many advantages:
- NO or Low tax environment
- NO VAT, NO Capital gain
- International and free business environment.
- Least but not least: Proximity with suppliers
Dubai, Mauritius, Panama and other welcoming jurisdictions don’t have the same PROXIMITY advantages, making it longer to scale up the businesses.
Being a small trader in Hong Kong is a logical step to success.