Helping our dynamic digital companies to make the best of Europe

This week, I am heading to Berlin to take part in the Startup Europe Summit.

I spent time with several tech startups recently in Rome and Paris, and am always impressed by their dynamism, imagination and drive to succeed. So it will be good to go now to Berlin, one of the EU's major startup capitals, to meet founders from all over Europe.

Starting a new company with a new idea is one thing. Trying to make it grow in a competitive marketplace is another. Of course, this is never easy. As with every company, it's about taking a risk – and also about not being afraid to fail. Learning to deal with failure means that you learned to take a risk, and in fact learned how to innovate.

It will be small businesses and web startups that will create the ideas and jobs that we need for our economic growth. No industry, no SME, no government can maximise its performance and competitiveness without going digital.

The potential is huge. It's just that we could be doing more to make the most of it.

Look at the growing size of Europe's app economy. Its scale is astonishing. In 2013, there were more than 1.8 million jobs related to the app economy and that number is expected to rise to 4.8 million by 2018. Its current revenue is estimated at €17.5 billion and forecast to hit €63 billion by the same year.

That said, a large part of the EU's innovation potential remains untapped.

While Europe has seen some stunning success stories, too many startups fail to grow into industry leaders, enter the global marketplace and put their economic prosperity back into Europe.

Of the world's top 100 companies created since 1970, the overwhelming majority are digital enterprises but only two are European: SAP and Vodafone. Only half of European unicorns have reached a sale or an IPO, compared with two-thirds in the United States – which suggests that Europe has a more challenging environment for technology investment.

Startups find it difficult to recruit the right talent and then retain it, and to gain access to financing at different stages of their growth. The market for capital and talent is very fragmented, as are the regulatory regimes. This makes it hard to set up a company in a different EU country, with people coming from different countries, or from beyond the EU.

Then there is the evident problem of scaling-up, especially across borders, and improving access to a larger customer base. Poor access to partnerships and funding leads many European startups to look for growth in other markets like the United States and Asia.

Apart from innovating better and faster, I think that startups could be given an easier beginning and helped more to bridge the gap from lab to market.

For this we have the Startup Europe programme, which focuses on connecting people and facilitating networking – because in order to grow, startups first need to be in the right networks.

It looks at the resources that entrepreneurs need like venture capital and accelerators, and aims to strengthen the business environment for web and ICT entrepreneurs so their ideas and business can start and grow in the EU.

At this week's Berlin summit, we are launching a series of EU-funded projects under the programme. They will connect startup communities, promote business skills, facilitate collaboration, encourage female entrepreneurship and help to counteract the idea that business failure is a negative thing.

It is important that we continue to promote startups and inspire entrepreneurs. So the EU will carry on with its many programmes and initiatives to build on what has been achieved so far.

But I believe that we can still do more to make it easier for people to turn their idea into a company and then see if it takes off commercially.

So, more concretely, what can be done on a European basis?

We should help by cutting red tape for entrepreneurs and smaller companies when they are trying to innovate, with easier set-up, registration and cross-border business rules. We can look for more and better ways for startups to access appropriate financing, particularly from the private sector.

Turning this into practice, by concrete, quick and effective steps will be the trick. This is what I want to hear from participants at the Berlin Startup Europe summit. We need your ideas, now.

One idea might be to establish a new type of pan-European small tech company licence or statute. Anyone could set it up in under 24 hours, with unified requirements across all EU countries, possibly simplified business rules at least for its early days.

This would really help new businesses to be created and also make it easy for cross-border investment to flow from investors in one country to companies in another.

Within the #DigitalSingleMarket that we are planning to build, there should be a fully functional tech entrepreneurial space, to create an environment where more companies can reach scale easily.

This is part of the need for better regulation for the digital age – rules that are "fit for purpose" – to promote the start and scale-up of digital businesses.

For startups, the future is now – let's help our dynamic digital companies to make the best of Europe.

Blogging again soon.

#Ansipblogs

 

20 Comments

Diana Kimpton's picture

diana@dianakimpton.co.uk

Sadly small start-ups struggling to set up digital businesses from their kitchen tables now have to cope with the new EU VAT place of supply rules for digital goods. That means they need to know all the VAT rates and rules for each of the 28 countries in the EU so they can charge customers the appropriate rate. That's not easy when even the EU itself can't provide an up-to-date list of the rules and rates, including the rules on VAT invoices. On top of that, they have keep two non-conflicting pieces of evidence about where the customer is based for 10 years.

There is no minimum threshold. Tiny businesses have to take on this administrative burden as soon as they sell one item to a customer in a different EU company, even if that item only costs 1p.

This is forcing micro-businesses to stop selling cross-border or to close completely. It's also preventing micro-businesses from expanding or even from starting at all. If you really want to do something to help start-ups, do away with this ridiculously complex and unwieldy system or, at the very least, create a threshold.

Susan Briscoe's picture

VAT on digital downloads

"We should help by cutting red tape for entrepreneurs and smaller companies when they are trying to innovate, with easier set-up, registration and cross-border business rules."

Changing the VAT rules so that sellers have to a) build systems that can work out where a customer is located and display the appropriate level of VAT for that customer prior to starting an online sale of a digital product, b) asking the customer for 2 pieces of non conflicting information re their location at the time of the sale, c) the storing of that information securely for a minimum of 10 years, all adds to the red tape which you say should be cut and imposes huge administration costs for smaller businesses. Many of these very small businesses are solo traders.

I appreciate that the new regulations were designed to catch companies like Amazon who use their location in low VAT states to their advantage. But it unfairly hits solo and small traders disproportionately, people who can't afford to implement systems capable of acquiring all the information needed or who already have very little time for administration, because the burden falls entirely on themselves. Do you or any of the other EU Commissioners who brought in this new Digital VAT legislation know how to code a website that can accurately detect a customers location and collect and store the information the new regulations require? Not all digital businesses are run by technical wizards - many small businesses use very basic website building and hosting packages to create their online business spaces.

The difficulty of creating digital VAT compliant systems drives digital sellers into the arms of the very big businesses that have dominated the market, because only they have the capacity to develop and run the appropriate checkout systems. And that is assuming that the customer is not using legal software to block their location...

Charlie 's picture

Red Tape

"We should help by cutting red tape for entrepreneurs and smaller companies when they are trying to innovate, with easier set-up, registration and cross-border business rules."

How do the new EU VAT rules fit into this? Rules which add a significant amount of red tape, so much that hundreds of small firms (just in the UK) had to close on the 1st of January 2015 because they couldn't cope with the compliance burden.

Who knows how many thousands more won't even start or will have to close down?

Carolyn's picture

startups - digital single market

Some excellent ideas which could really help people to create startup companies, however getting the basics right first would be the best step:

You state "We should help by cutting red tape for entrepreneurs and smaller companies " and yet a new EU ruling has just come into force at 1 January 2015 (EU VAT on digital sales) which is making continuing in business extremely difficult for some and completely impossible for others (who have just given up and closed their businesses).

There is no point in you trying to implement the excellent ideas in your blog if the EU are going to continue to make rulings which cause existing businesses to close down and dissuade others from being started.

Our business is very small and we have very few B2C sales in the EU but outside the UK (we are mostly B2B), however I have already spent many, many hours trying to understand the new rules and I still don't understand them. Contacting HMRC in the UK has proved pointless as they don't bother to reply. I am just hoping that we don't receive any B2C orders (surely this is not the way to be doing business, I should be hoping for lots of orders!!). If I were considering starting a new, innovative business which might involve any sales outside of the UK, due to this new ruling I just wouldn't bother. Equally, I would also actively discourage others to. Surely this is not what you want?

So in conclusion, instead of trying to implement your new ideas, why don't you try to sort out the huge anomalies and remove some "red tape" to allow small businesses to startup and operate easily within the EU?

Paul Wisken's picture

New EU VAT affecting micro-businesses

Referring to your words:
"We should help by cutting red tape for entrepreneurs and smaller companies when they are trying to innovate, with easier set-up, registration and cross-border business rules. We can look for more and better ways for startups to access appropriate financing, particularly from the private sector.

Turning this into practice, by concrete, quick and effective steps will be the trick. This is what I want to hear from participants at the Berlin Startup Europe summit. We need your ideas, now."

I cannot say better than the two previous comments. My own plans for a small online self-publishing business in my retirement have been indefinitely postponed until the EU VAT regulations are clarified and workable.

Sarah Leonard's picture

Red Tape

The new EU VAT Legislation actively adds layer upon layer of extra red tape that start up businesses and micro businesses just can't manage.

I know of several businesses who have either cut all digital services or blocked European sales as a direct result of this new legislation.

There needs to be a VAT threshold to safeguard these smaller businesses from the burden and cost of the legislation itself.

Bob Lang's picture

This is a joke? Right?

You can't possibly talk about "cutting red tape" whilst at the same the EU dumps a huge administrative burden of EU VAT on micro businesses, with no threshold. If a startup makes a single digital sale of €1 to a different EU country then it has to register for VAT MOSS, make returns every 3 months, and keep customer data for 10 years. And that's assuming that it can find two "non-conflicting" pieces of data to confirm the customer's address.

Is it surprising that some entrepreneurs are closing their businesses, whilst others are blocking sales out of their own country?

If you're serious about cutting red tape prove it by starting here!

Heather's picture

Creative growth

"They will connect startup communities, promote business skills, facilitate collaboration, encourage female entrepreneurship"... I think you might find that digital start up businesses have achieved these goals already, without any european intervention.
The attempt to implement cross border VAT collection has caused many such small business to close, and the thriving craft and creative communities become deeply divided with outside EU businesses blocking sales to EU customers. What we need is sensible thresholds for VAT on digital products to allow these amazing micro entrepreneurs to continue sharing their expertise.

annabel's picture

VAT

Lovely ideas but the EU is doing the opposite by imposing EUVAT on digital and then physical goods in a way that is unworkable for start ups and micro businesses.

Big disconnect between this blog and the reality of what the EU is doing

Luigi Lenguito's picture

EU-Corp

And if this new legal entity type was to pay taxes to EU directly ? Maybe having a corp tax rate lower than what one can find in any state (even Irl) .... We need to start breaking the rules of member states if we want a truly European state.

I'm at #SES15 happy to chat more on the impact.

Also let's not forget http://startupmanifesto.eu/ - all it is still very valid.

Elisabetta's picture

You need to focus on the VAT issue

"Starting a new company with a new idea is one thing. Trying to make it grow in a competitive marketplace is another. "

I was doing just fine on own doing this until the EU VAT changes. Now this means that competitors outside the EU, who have no incentive (and no real fear of prosecution) to comply with these rules are able to outcompete me by not charging VAT. In a digital marketplace where goods can be supplied instantly to consumers accross the globe this is a massive disadvantage and I'm already seeing my EU sales diminish, and I'm having to carry a much larger burden of admin to make them.

I'm sure that you see it as your job to create strategy rather than deal with the dirty work of implementation. But when a policy has gone as badly wrong as this one, it is time for everyone to stop doing their day job and fix it before moving on with the next strategic day dream.

Barbara Neill's picture

Digital business

Unfortunately, like many others who run small businesses, I've had to scale DOWN my digital sales in Europe because the new EU VAT regulations, that came into effect in January, have forced me to do so. I am a sole trader and cannot afford the time that would need to be spent on satisfying the bureaucratic requirements.

IAB Europe's picture

Learn more about European innovative companies

We agree with you that a large part of the EU's innovation potential remains untapped.

To raise awareness of EU digital innovation potential, we have created Digital Innovation Showcase Europe.

On the website www.digitalinnovation.eu you can:
- discover best-cases examples or European innovative digital companies,
- learn about variety of business models the internet is fostering,
- and most importantly read digital entrepreneurs' analyses of how the EU could better nurture this high-growth ecosystem.

Phil Kellingley's picture

You guys just don't get it, do you?

"We should help by cutting red tape for entrepreneurs and smaller companies when they are trying to innovate, with easier set-up, registration and cross-border business rules."

So, why has the EU imposed a massive red tape burden on entrepreneurs and small companies by the introduction of a plainly insane VAT system for digital business? The very business you are saying it needs to promote?

Unfortunately, all this sound-bite stuff might play well in the closed offices of the EU commission - but in the world outside it's meaningless rubbish.

At a stroke, the introduction of the VAT rules on digital business at the start of this year - which was implemented with zero input from 'small' business, has caused large numbers to either cease trading or to stop any form of cross border trading. You have a bizarre sense of 'helping'.

Lele Schirmeister's picture

EU VAT

I would have liked to grow the e-sales part of our company. Unfortunately EU VAT was introduced and we had CLOSE this branch. So much for promoting small companies and eBusiness.

IAB Europe's picture

Corrected URL

It works better with the right URL: http://www.digitalinnovationeurope.eu/

Wayne Neale's picture

You want to control

"One idea might be to establish a new type of pan-European small tech company licence or statute. Anyone could set it up in under 24 hours, with unified requirements across all EU countries, possibly simplified business rules at least for its early days"

How would this help anyone but the EU and it's 'end game' mentality of a:
- single EU VAT registration
- single VAT rates (and no reliefs either)
- single VAT declaration
- common rules
- power through taxation over billions of EU citizens through an unelected and unaccountable executive.

We've read 1984. You're trying to make us live it!

The VAT changes are, as people have said, mad for small business, but people need to look at what you are really up to. Nothing the EU does, absolutely nothing, is not part of this control idealology.

Galava UK's picture

EU VAT is killing small digital businesses

The EU has killed plans to provide some of our products as digital downloads with its ill-conceived VAT scheme. As a small business, with a turnover below the UK VAT threshold, having to set up systems to cope with the VAT burden of cross-border sales within the EU is just not financially viable. Establishing the country of origin of a buyer *before* the sale, providing the price with the correct VAT rate for that country applied, and obtaining 2 non-conflicting pieces of evidence to support this is beyond the capabilities of the shopping cart software we use. Being forced to change to bespoke software would add a huge cost to our internet shop and on which we would probably never see a profit. The whole system is unworkable for small businesses without a sensible threshold for small businesses. Thank you EU for making our lives more difficult and our businesses less profitable. Perhaps we should just close down now to save you the bother of extending this ridiculous system to physical goods as well, which would actually sound its death knell!

Felix Schwarz's picture

#VATMOSS Homework

Dear Mr. Ansip,

if the EU Commission is serious about removing red tape, it should reverse its course on #VATMOSS - which, in its current implementation - presents a huge barrier to market entry and establishing innovative new services that depend on in-house billing.

If you want to clean up this mess, here are a few things for your immediate consideration:

1) Access to correct VAT rates
The EU Commission should provide a web API that provides the current VAT rates and upcoming updates to them. Right now, not even the EC's PDF documentation on #VATMOSS manages to provide correct VAT rates (for, f.ex. Luxembourg, which is now 17%, not 15%)!

2) Reference invoice
#VATMOSS, as implemented, means that companies need to issue invoices that comply with 28 different, national invoicing requirements. Some of them require cyrillic letters or a particular, national invoice number scheme. This is ridiculous and unnecessary. A single, reference invoice format that merchants can use to issue invoices for all 28 countries would go a long way to fix this mess.

3) Rounding
Amazingly, not even VAT rounding is standardized and can differ for each of the 28 member states. There are at least two rulings of the European Court of Justice that explicitly state this fact. It's time to fix this.

4) VAT refunds
A company that invoices in Euro and pays VAT in Euro to a country that has not adopted the Euro, yet, will receive part of the refund in the respective countries currency, because the home member state currently still keep a share of VAT, too. Who thought that a single refund coming from two entities in two different currencies would be a great idea? So, yes, refunds from all member states should be in the currency of the original VAT payment and come from a single entity.

5) Thresholds
Amazingly, all EU member states have VAT registration thresholds (http://www.vatlive.com/eu-vat-rules/distance-selling-eu-vat-thresholds/), but the EU Commission continues to reject the idea of a #VATMOSS threshold, making entry to the market harder for new & small startups without necessity.

6) Timezones
While the EU spans 3 different timezones, the EU directives on #VATMOSS include no information on what timezone applies to a transaction. This should be clarified.

7) Accountability
If the EC provides documentation, companies should be able to legally rely on it, not face complete uncertainty as to whether even that info actually is correct and applicable.

Karen Butler's picture

EU VAT adds red tape not reduces it

It's time you started listening to micro and nano businesses.

Last year, I started selling knitting patterns of my own designs as pdfs using an international marketplace. Within days, I was selling internationally.

I had plans, once I had a number of patterns available, to set up my own website to sell direct as well. The EU VAT regulations stopped that plan. As a new designer, I know that sales through my own website will be low. Based on experiences of other designers, knitters usually purchase through marketplaces. With no registration threshold, I would have to register for EU VAT for sales that could well amount to less than £10 to an individual country. I need to spend my time on work that generates income, not EU VAT red tape to pay pence to individual EU countries.

I am in contact with other designers across Europe. EU VAT, and the lack of information provided automatically to sole traders across Europe, not to mention individuals being given grossly incorrect information by their tax authority has lead to many sole traders losing time and therefore money. Many have been bullied into registering for VAT by platforms not taking responsibility. The amount of extra work and stress these regulations have caused is immense and ongoing.

If you want to cut red tape, the place to start is a Europe wide minimum threshold of 35000 Euros for registering for VAT, in line with the threshold for physical goods. It could be variable from country to country, providing it is above this minimum. And it needs to be done quickly.

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