EU VAT for digital goods explained
Where did this all start?
In 2014 many people became worried about a rumour of a new law that is coming into place as of Jan 2015, regarding selling digital content online. The new law was more than just a rumour, and was causing a lot of panic for a lot of sellers.
The new law outlines that any seller, selling automated, downloadable, digital content, must start charging VAT on their sales.
The implications of this worried sellers as many are small and part-time, and the new law not only came with added costs, but added complications that most sellers don't have the knowledge or skills to implement or afford.
So what is EU VAT?
In order to counteract a lot of big digital platforms such as Apple, Amazon and Ebay avoiding tax by situating their head offices in a low VAT rate country, the EU decided in 2009 to introduce a new way of determining how VAT is charged on digital sales.
They decided, that come 2015, companies selling digital content into the EU would have to charge a rate of VAT based on where the customer is located, instead of where they, the seller, are located.
This means that companies selling downloads, need to be able to determine where a digital product is being purchased from, and add the correct VAT of that countries current VAT rate. This rate changes from country to country, month to month, in some cases as low as 15% and as high as 25%.
So what needs to be done?
Under this new EU law, anyone selling in to the EU must register for VAT in order to charge this tax on their sales.
The law states that the seller must collect certain information to ensure they are charging the correct VAT on each sale. This information includes, but is not limited to, the customers:
- IP address
- Credit card BIN number
- Customers billing address
- Telephone number
"Seems simple, right?" - Wrong. The seller needs to collect information from 2 of the sources mentioned, and then ensure that the country that they apply to, match in both instances.
This means the seller must
- Have access to this information before the sale takes place, which in a lot of cases, isn't easy or available,
- Be able to know what country each piece of information belongs to, which in a lot of cases, isn't easy or available.
If this information is not collected, verified and stored, then the sale cannot take place.
"How do I even store this information?" - Not only does this information need to be collected, it needs to be stored, by law, under the Data Protection Act for 10 years. This means registering for the Data Protection Act, which incurs another cost, and after making the sale, even if you stop selling, you still need to pay to ensure that this information is kept securely and follows the procedures outlined in the Data Protection Act for 10 years.
Surely this doesn't apply to me?!
A lot of sellers were unsure as to whether this even applied to them.
"Surely if you're only selling a couple of downloads a month, you don't need to take all these steps just to take an order?" - The EU regulations state that any sale into the EU must have VAT applied.
This is what the EU regulations outline for who this applies to:
Determining who is making the supply
Where digital services are supplied B2C, it is the supplier of those services who is liable to pay the VAT to the tax authorities. Consequently it's essential to identify who that is. In the majority of cases this will be straightforward, although special rules apply for services through internet portals, gateways or marketplaces.
"But I'm using a portal to sell my content, so don't they pay the VAT?" - Yes, they should and this is where there is a lot of confusion.
This is what the EU regulations outline for portals and platforms:
Supplies via internet portals, gateways or marketplaces
If you supply digital services to consumers through an online portal, gateway or marketplace then it's important to determine whether you're making the supply to the customer or to the platform operator. Where the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn't clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they'll be seen as making the B2C supply even if they're contractually only an agent.
"This is confusing, so who is actually determined to be making the sale?" - It is confusing, but after discussing this with VAT experts and HMRC, it is quite clear to see that if the platform authorises the payments and delivery of the digital product, then they are responsible for invoicing the customer and paying the VAT.
This is what the EU regulations outline for defining who is:
Some indicators suggesting that a taxable person takes part in the supply are listed below:
- Owning or managing the technical platform over which the services are delivered;
- Being responsible for the actual delivery;
- Being responsible for collecting payment unless the only involvement of the taxable person is the processing of payment;
- Controlling or exerting influence over the pricing;
- Being the one legally required to issue a VAT invoice, receipt or bill to the end user in respect of the supply;
- Providing customer care or support in relation to queries about or problems with the service itself;
- Exerting control or influence over the presentation and format of the virtual market place (such as app stores or websites) such that the brand and identity of the taxable person are significantly more prominent than those of other persons involved in the supply;
- Having legal obligations or liabilities in relation to the service provided;
- Owning the customer data related to the supply in question;
- Being in a position to credit a sale without the supplier's permission or prior approval in cases where the supply was not properly received.
"That's pretty clear cut then, surely? It's up to the platform to invoice the customer and pay the VAT on the sale?" - Yes, and that's why we handle all the VAT, meaning selling through us doesn't require you to register for VAT and collect and store this information.
Still not sure?
"I live outside the EU, so surely this doesn't apply to me?" - It does apply to you, the law states that any digital sales coming in to an EU country must abide by the new EU VAT law. That means if you aren't selling through a platform like bamazoo®, you must register for VAT under one of the EU states and file your returns to your chosen countries VAT office.
Fortunately, if you are selling on bamazoo® it doesn't matter what country you are from, we are fully compliant, and adhere by all the new EU VAT laws.
"Other platforms tell me otherwise, and they invoice for the VAT separately and I get paid directly from the customer." - VAT is a self assessed tax. This means that you are responsible for declaring your own VAT status, and paying the correct VAT on your sales. This means that you are responsible to decide how the law applies to you.
There are platforms that are attempting to pass this burden off to sellers, and saving themselves the added cost. Not only do we believe this to be illegal, it could mean, that you the seller, result in being audited and end up paying VAT on all your sales.
"But I still want to invoice the customer directly." - There's nothing stopping you from doing so, but it means you will need to have your own delivery platform that is directly controlled and owned by yourself. This isn't cheap, or easy.
"I've seen Wordpress plugins that let me sell downloads on my own site?" - Yes there are plugins that let you sell downloads on your own site. This doesn't absolve you from all of the above, you will need to ensure that the information you collect is verified and stored, and that you are registered for VAT, and the Data Protection Act, and file the VAT returns to your chosen EU state - Not fun! But if you're willing and able to do that, then that's fine.
When you sell through us, bamazoo® becomes the seller of your content, this means that we invoice the customers directly and calculate and charge any VAT required. We store this information securely on our London based servers, and are registered under the Data Protection Act.
We file and return the VAT with HMRC in the UK using the VATMOSS system.
We pay you, the author, a royalty value, separate to any sales to do with the end customer. This means you do not have to deal in anyway with the hassle of EU digital VAT.
Phew! Is that everything?
Yes, thanks for reading. Hopefully if that all made sense, it's clear to see that bamazoo® is indeed following the new EU law correctly and that selling through us means you don't need to worry about registering for VAT.
If you'd like to read the official regulations article on the HMRC website, please follow this link.
If you have any other questions, please don't hesitate to contact us by emailing firstname.lastname@example.org.