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.

How to create, price, and sell digital products

In this tutorial we look at how to price a digital product, for example, an ebook, courseware, infographic, or other product that you plan to sell using amazon Kindle, Shopify, Clickbank, eJunkie, or 1ShoppingCart among others.
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What’s the definition of digital goods?
One definition for the Wisconsin Finance Dept states it as:
“A “digital good” can be any product that it is transferred electronically to the purchaser, other than pre-written computer software.
Digital goods include versions of products that have historically been produced and transferred as articles of tangible personal property that are now produced and transferred electronically as digital files. A digital good can be previously recorded sounds or images such as music, movies, or video or electronic games that are transferred electronically to customers by retailers of such products.
Example of Digital Goods
An example is “recorded music produced and sold as a digitally-encoded file which is transferred electronically to the purchaser. Recorded music transferred electronically is a digital good.” http://www.revenue.wi.gov/faqs/ise/diggoods.html
Examples of digital books include:

  • Novels and autobiographies
  • Encyclopedias, dictionaries, and repair manuals
  • Directories, such as phone directories, business directories, zip code directories
  • Educational textbooks
  • Cookbooks

Examples of what is not a digital book:

  • Newspapers or other news or information products transferred electronically, such as a website maintained by or for a local television station which posts current news, weather and sports information for viewing by the person accessing the website.
    Note (1): “Newspapers or other news or information products,” while not subject to tax as a “digital book,” may be subject to tax as an “additional digital good.”
    Note (2): Newspapers are exempt from sales and use taxes, regardless of whether they are transferred electronically or in paper form.
  • Periodicals, such as magazines issued weekly, monthly or at some other regular interval of more than on one day, scientific journals, trade publications, and newspapers issued at regular intervals other than daily.
    Note: A “periodical,” while not subject to tax as a digital book, may be subject to tax as an “additional digital good.”
  • Chat room discussions
  • Blogs:
    Note: A “blog,” while not subject to tax as a digital book, may be subject to tax as an “additional digital good.”

What is a digital product?

It is transferred electronically. (See section 201(8) of ESHB 2075 or section 203(8) of SHB 2620)
Digital goods (movies and music, etc.)
Digital automated services (services that have been automated)
The bill also covers remote access software, which is now subject to sales and use tax. (See section 201(7) of ESHB 2075 or section 203(7) of SHB 2620)
What is a digital good?

  • Data
  • Facts
  • Information
  • Sounds (music)
  • Images (movies, pictures

Next week we look at VAT on Digital Goods.
Photo: fallentomato