UK trade association TIGA has warned of impending chaos and confusion for developers across the European Union if planned changes to VAT come into force on 1 January 2015.
The body has highlighted a switch in protocol that will require developers and publishers to calculate the VAT they pay based on the rate of the countries they're selling their games in, rather than where their business is based.
This means independent studios could find themselves having to calculate and manage 27 different VAT rates across the EU for all sales, including digital.
TIGA points out much of the confusion could be cleared up with the help of MOSS - an EU wide accounting system designed to simplify the whole process – but businesses are required to have a turnover of more than £81,000 in order to qualify.
"The EU's new VAT regulations will increase costs and compliance burdens on many businesses, including games businesses," detailed TIGA CEO Dr. Richard Wilson.
"Almost 60 per cent of UK studios have four or fewer staff. These businesses do not have the in-house expertise to deal with the administrative burden that the new rules will spawn. This could have a damaging impact on the competitiveness of smaller businesses.
This could have a damaging impact on the competitiveness of smaller businessesDr. Richard Wilson
"Given the increased regulatory burden and the damage to competitiveness, some small games businesses - and some small businesses in other sectors - may restrict sales to the UK only. The new VAT regulations have the potential to discourage exports from some small businesses."
Call for action
To comply with the changes, TIGA claims developers will now need to have mechanisms in their releases that determine where a player is playing from (in order to pay the right amount of VAT), and, amongst other hurdles, continuously monitor all transactions for reporting purposes.
"TIGA recommends that policy makers introduce an exemption to the requirement to either register for VAT in other EU Member States or register for MOSS when providing electronically supplied services to private consumers," concluded Wilson.
"This would reduce the burden on start-ups and small businesses and ensure that such businesses are not deterred from trading with customers throughout the EU."
TIGA is looking to pile pressure on the EU to make micro businesses exempt, with the body having also produced a guide to the VAT changes in collaboration with Grant Thornton, available to download for free here.