This post has been getting occasional edits, especially resource links added at the end, but this is a continuously-evolving field. If you’re affected, use the links to read further.
A few days ago a chance Facebook post by a friend asked if anyone knew about the new EU rules for VAT on sales of digital products. I hadn’t heard anything about it, so I checked it out. What I found was extremely alarming.
The new rules come into force in a few weeks’ time. They change the landscape of online selling in a big way, to the detriment of independent content creators. And very few people know about them.
From the materials I found, it was difficult to get a clear picture of how it works and what it means for me. This post sets out my current understanding, with the aim of giving others a clearer introduction.
(Please do not rely on it as advice for making important decisions. I’m not responsible for any consequences of acting on it.)
The short version
From 1 January 2015 new rules on VAT (value added tax) come into force across the European Union (EU). These will affect you if:
- you sell ‘digital services’ – explored in a minute, but yes, it does include ebooks, PDF products, training materials, software and music files
- you sell business to consumer (B2C) to EU citizens, wherever you are based (B2B, business to business selling, is not covered by these rules).
The essence of the change is that the ‘place of supply’ for VAT purposes will now be the location of the purchaser, not the location of the seller. Sellers will have to add VAT to the purchase price at the rate for the customer’s country, and ensure that the appropriate payment goes to that country.
Due to the effects of harmonising countries’ rules and the way the admin will work, if you fall under the new rules you will have to register for VAT. All your digital sales will be liable for VAT, and once you’ve registered you’ll have to account for it on all your other activities too. [Read more…] about New EU VAT rules change the game for digital businesses
