In a post-COVID-19 world, virtual events are our saviour. They’ve been a haven for organisers, creating a place to share content, build connections, and deliver at least some form of experience in a totally safe manner.
The issue is, virtual events are different; in infrastructure, preparation, delivery, and even billing. Recent trials of the format have unearthed some of their more hidden differences, one of the main points being how they’re taxed.
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Physical events vs virtual events: How they differ
When you host a physical event within the European Union (EU), you have to apply a value-added tax (VAT) to the price of whatever you sell.
The rate and application of tax are based on where your event is held. For example, if I’m hosting an event in the UK, I can register for VAT and apply 20% to the value of each product. That includes tickets, exhibition stands, sponsorship packages, award entries – the list goes on.
Don’t forget that VAT ranges from 17% in Luxembourg to a hefty 27% in Hungary, so it’s worth knowing your numbers before you choose a location.
With regards to the situation in the US, there are state-by-state rules that dictate when an event organiser needs to apply tax. The minimum threshold for revenue starts at $10,000 in places like Oklahoma, all the way up to $500,000 in Tennesse and Massachusetts. Again, these are the guidelines for physical gatherings, based on where they are held.
Virtual events, though a lot easier to host, are much more complex when it comes to tax. They essentially have no specific location, unless you’re counting ‘the internet’, so there goes our chance of using all the standard processes.
In this case, the rate you apply is based on the destination of your experience, i.e. where the attendee is, rather than where the event takes place. You can find more information on European VAT rules for the supply of electronic services by clicking here.
The US is a little different in the sense of applying different rates of tax according to the event format (e.g. online training, software, electronic download of videos). You might also be exempt from applying a ‘remote seller tax’ if you’re using a third-party software to run your virtual event, or if it includes some form of live streaming element. For more information, click here.
However logical it may seem, the destination rule creates a minefield when considering the global audiences of conferences, exhibitions, trade shows and more. Their attendees come from all over the world, meaning the organiser has to be able to track locations and apply VAT on a guest-by-guest basis.
What are my options?
Taxing virtual events is of course possible. We at EventsCase have tested several ways of doing this and can now present our findings. Behold the answer to your administrative tornado.
Option one: Invest in a third-party software
Let’s start with the easiest option out there. If history has taught us anything, it’s that companies and technologies are born from the desire to solve a specific problem. Location tracking and taxation present challenges that only some people can meet. Thankfully, we now have solutions to take care of everything in a quick, simple manner.
The role of a solution provider is to determine the correct rate of each transaction and apply it, in real time, to the attendee’s order. Most will use a form of geolocation technology to identify the user’s IP address. From here, it’s just a case of adding the tax onto the basket value and having them checkout as normal.
This is the option EventsCase went for due to the nature of our all-in-one event management platform. We chose Octobat for its ease of use and reliability, but there are plenty of other choices for navigating virtual events VAT.
Option two: Hire a specialist
Our second suggestion is to venture down the manual route by handing everything over to a VAT expert (e.g. an accountancy firm or qualified professional). This might actually require the use of technology similar to option one. However, you do sidestep the problem of identifying, integrating, and managing yet another solution.
We’d be careful of the premium attached to using an agency for this type of work, especially if your virtual event is being run to incredibly tight margins. It could be an expense you didn’t account for and simply cannot afford. In which case, option one might be the more viable choice.
Option three: Do it yourself
We’ve referenced the example of large-scale exhibitions and conferences, but not all events attract thousands of attendees. Some are much smaller, leaving only tens of cases to sift through.
If you tend to send invoices for tickets and services post-booking, it is possible to cut corners and apply VAT to these documents when they’re being sent. The biggest consideration is the time it will take to do this. But if you have a simple way of identifying each guest’s location, there is nothing stopping you from going down this route.
Our advice? Solve it now
Whether you choose option one, two or three, we recommend doing so at the earliest opportunity.
Tax has a habit of creeping up on businesses – it’s the task we love to ignore. Unfortunately, your failure to comply with the rules of each country may lead to severe financial penalties and even more work than you would have gone through originally.
For our two cents, think of all the time you’ve saved on managing caterers, AV and on-site staff. It could be hours or even days. Put some of it into taxation, and you’ll create a process for launching virtual events again and again.
VAT Rules for Supplies of Digital Services to Consumers in the EU (Source: Gov.uk)
VAT Implications of a Virtual Event (Source: Accordance)
Requirements for a Nexus in Online Transactions (Source: The Balance SMB, US)