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Digital Products & European VAT Law

by skeedio
7 replies
According to European law, we are required to charge 19% (depends on country) VAT on digital purchases made from citizens in Europe, deduct the VAT percentage from European businesses that can provide a valid VAT number and not charge people living outside of Europe the VAT percentage.

Another rule I came across are the receipt rules on which you have to list your business name & address, customer's name and address VAT number and more which I can't recall now.

I'm not sure whether the second receipt rule is country specific but I'm a little frustrated by all of this. To sell a digital product, I would have to verify whether someone is within Europe, whether it's a business ordering the product and ask (& verify) all sorts of information that make purchasing a digital product complicated while foreign competitors can immediately direct their clients to Paypal without any further questions.

I would like to know how other Europeans deal with these rules. Are there ways to legally get around them?
#european #law #vat
  • Profile picture of the author pearsonbrown
    There have been a few threads on here about this - but mostly just the UK and VAT.

    For digital goods, the sale is considered by the EU to take place in the country where the client lives. So if you sell to France, you have to charge French VAT and maintain a record of this French VAT in your accounting system. Imagine the complications if you sell throughout the EU.

    However, this only applies once you have passed a certain threshold. This threshold is so high in the UK that an individual marketer is unlikely to have a problem. I suppose it will be the same in the Netherlands.

    One other way to avoid any problem is to use Clickbank. Technically Clickbank buys your product off you and resells it to the client. So you sell to the USA and all the VAT problems are left to Clickbank.

    Pearson


    PS If you want to see how complicated it could be, look at this page from Amazon UK

    http://www.amazon.co.uk/gp/help/cust...?nodeId=502578
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  • Profile picture of the author macchiavelli
    Hoofdpijn krijg ik van dit onderwerp!!

    I just get my money in large sums via paypal and just claim it as 1 sale.
    Way easier!
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  • Profile picture of the author skeedio
    Thanks for the tip, Pearson. I will consider selling through Clickbank in the future. The VAT list on Amazon is ridiculous.

    However, this only applies once you have passed a certain threshold. This threshold is so high in the UK that an individual marketer is unlikely to have a problem. I suppose it will be the same in the Netherlands.
    I couldn't find any information about a threshold here in The Netherlands but from what I was told by tax people is that I have to declare VAT on every digital product sold within Europe.

    Macchiavelli, I can relate to the hoofdpijn.
    I'm working on selling rights to use designs/photos for under $5 (which makes the VAT issue even more ridiculous) and when I claim large sums on Paypal as a single sale I'd either be in trouble if they ever want more details on my sales or will have trouble dealing with European businesses who want the VAT back.

    I've thought about charging VAT to everyone, including people outside Europe and having a tiny link at the bottom for companies within the EU who wish to purchase but I'm concerned it's illegal.
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    • Profile picture of the author Frank Donovan
      Hi Pearson,

      Originally Posted by pearsonbrown View Post

      For digital goods, the sale is considered by the EU to take place in the country where the client lives. So if you sell to France, you have to charge French VAT and maintain a record of this French VAT in your accounting system. Imagine the complications if you sell throughout the EU.
      Confusingly, if you are based in the EU and you supply business services (e.g. an autoresponder) to a customer elsewhere in the EU, you are now required (from 1st Jan 2010) to charge VAT at the rate within your own country, unless your customer provides you with their own VAT registration number (see here: HM Revenue & Customs: Cross-Border Changes ).

      However, this only applies once you have passed a certain threshold. This threshold is so high in the UK that an individual marketer is unlikely to have a problem. I suppose it will be the same in the Netherlands.
      The threshold in the UK is currently £68,000 within any consecutive 12 month period. I would hope that's well within the ambition of many (full-time) individual marketers.


      Hi Skeedio,

      Originally Posted by skeedio View Post

      According to European law, we are required to charge 19% (depends on country) VAT on digital purchases made from citizens in Europe, deduct the VAT percentage from European businesses that can provide a valid VAT number and not charge people living outside of Europe the VAT percentage.
      If the VAT rate in the Netherlands is 19% and you are providing business services, then what you have stated here is probably correct.


      Frank
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      • Profile picture of the author Josh Anderson
        Originally Posted by skeedio View Post

        I would like to know how other Europeans deal with these rules.
        Our clients use Nanacast to handle this type of tracking by assigning VAT based by country of client so that it is automatically calculated. They then can run reports for tax purposes.

        This is something we released recently because of client requests but we already handled it the same way for US state based tax collection requirements and accounting.

        Originally Posted by Frank Donovan View Post

        Confusingly, if you are based in the EU and you supply business services (e.g. an autoresponder) to a customer elsewhere in the EU, you are now required (from 1st Jan 2010) to charge VAT at the rate within your own country, unless your customer provides you with their own VAT registration number (see here: HM Revenue & Customs: Cross-Border Changes ).
        I think it would be great to take the same approach childhood public education.

        Teach the children how to read then once they are reading really well tell them that when reading orally to people outside their country they must read backwards.

        If only we could spread the brilliant critical thinking of politicians to all aspects of our lives
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  • Profile picture of the author Flipfilter
    VAT law is a grey area both here and the Netherlands (e.g. the same item can be standard or zero rated merely depending on the way it's handed to the customer).

    The best strategy is simply to call the tax office, and take what they say with a pinch of Salt.
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    • Profile picture of the author John Henderson
      Originally Posted by Flipfilter View Post

      VAT law is a grey area both here and the Netherlands (e.g. the same item can be standard or zero rated merely depending on the way it's handed to the customer).
      It could be described as a ball-bustingly complicated nightmare, but VAT law is not a 'grey' area. It's precisely defined by lots of documents on the HMRC website.

      Go to HM Revenue & Customs: Home Page and type "UK VAT electronically supplied services" into the search box. All will be revealed.
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