VAT on Digital Products in Europe?

The EU operates Value Added Tax (VAT) and electronic goods and services are subject to VAT at the applicable rate. Each member state may set its own rate of VAT if they want. VAT regulations are very complicated and the intent of this article is not to provide definitive guidance but rather to list some of the relevant factors.

  • VAT is not collected from foreign EU businesses
  • A business must always charge VAT to non-VAT registered entities (i.e. consumers) but should not charge VAT to foreign EU VAT registered businesses who provide them with a VAT number. These foreign EU businesses are required to declare their purchase and the tax due to their own tax authorities. See http://ec.europa.eu
  • From 1st July 2003, EU suppliers will no longer be obliged to charge European VAT when selling on markets outside the EU.
  • When a non-EU supplier sells to business customers in the Union (at least 90% of this market), there will in practice be no change and the VAT implications will be handled by the acquiring company in the EU under self-assessment arrangements.
  • For the non-EU supplier whose EU customers are non-business individuals or organisations, there will now be an obligation to charge and account for VAT on these sales just as EU suppliers have to do.
  • The EU has issued a directive stating VAT on all electronic services and goods should be charged in the country where they are bought. That means that, if ou are selling a digital edition of a magazine to UK customers through Apple. the VAT charged will be 20 percent, not 15.

In other words, if you are charging £10 an issue, including £1.50 worth of VAT, the changes mean you would have put the cover price up by 50p, or give an extra 50p of revenue on every sale to the tax man. See www.themediabriefing.com
Next week we look at tax on digital goods.