It’s Sunday afternoon and over 48 hours since the stunning announcement that the UK has voted to leave the EU. On the surface, this seems like something small happening far, far away. The UK doesn’t use the Euro anyway and now I’ll get my passport stamped whenever going between the island and the continent! Yay! But the existence of EU has made your subscription business life easier event if you didn’t know it.
Before I get into why this vote is such a big deal, how many people understand what the Norwegian tax rules are for selling your digital products and online services to a Norwegian customer? If you don’t care today, you will care in the future: Due to a tax law change in 2011, German company AskNet has up to a 2.5 million Euro tax surprise. It. Can. Happen. To. You. This is just one example of how a country’s laws can affect your business. Now back to Brexit.
For a little perspective, consider the history of the Euro, the European common currency. The Euro was agreed to in 1993, implemented virtually in 1999 and began circulating in the wild in 2002. It took almost 10 full years from the time that the currency was agreed to before it was held in people’s hands. Around 2003, I heard lots of stories of Germans who traded in their Deutsch Marks (DM), 2 for every euro, seeing prices change from 15 DM to 15 Euros at restaurants overnight. That’s a 100% inflation on prices! Not only was the birthing process of the currency challenging, but the implementation was not the same from country to country and took years for people to stop complaining about how it was “before the Euro”.
There was a major positive because of the Euro for online businesses in the early 2000’s: the currency complexity decreased substantially overnight. No longer did you have to get a payment contract for the Italian Lira or the French Franc or the Dutch Guilder. Just one Euro contract covered hundreds of millions of people and a dozen countries.
If you think about how challenging it is to manage US sales tax nexus for your business (or perhaps you aren’t aware of the challenges…tsk-tsk), it’s similar to what it was like before the Euro. Complex, time consuming and costly.
With respect to Brexit, there’s an approximate 2 year deadline to undo the UK’s connection to the EU. This may not be as practically challenging for your SaaS business since the UK never embraced the Euro, but get ready to start watching what the UK rules around SaaS taxation are, what UK specific privacy rules affect your customers and what data sovereignty requirements appear to “protect” British citizens. If the UK wouldn’t exit the EU, there would be only one place to watch all these things. This could be the first European domino that falls… on your head.