EU confirms VAT on crowdfunding

The EU’s VAT Committee has published its new review of the liability to VAT of crowdfunding activities, which included confirmation that VAT is due on reward-based crowdfunding projects.

While not binding on EU member states, the conclusions of the Committee are highly influential, and are typically followed by national tax authorities’.

European Commission (EC) concerns on crowdfunding

The EC referred the VAT issue to the Committee in April.  It was particularly concerned with the highly popular practice of ‘rewards crowdfunding’ where the public can contribute funds in return for products or services, still to be developed by the fundraiser. Recent rewards projects have included software development, films and a range of consumer products that are offered free or at a significant discount to crowdfunding investors.

Committee concludes VAT due on rewards crowdfunding

The key conclusions of the VAT Committee were:

• Goods or services promised to investors in exchange for their funds in crowdfunding campaigns are liable to VAT as a taxable transaction
• VAT due on funding will be payable to the tax authorities when the cash is received
• Where investors receive shares, bonds or debt in the campaign, there is no VAT due – although a participation in future profits from intellectual property rights will be subject to VAT
• The services of crowdfunding platforms that provide fundraising services to entrepreneurs are within the scope of VAT

The VAT Committee’s conclusion may spring a tax liability on unprepared crowdfunding projects and make the economics far less attractive.  Many projects will now have to register for VAT to process and report the liabilities.