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Product Owners - VAT inclusive or exclusive?

by RichardF
16 replies
Looking for some input on this. Since I'm in the EU I will need to collect VAT from EU buyers. The question is if I should tack on the VAT on top of the advertised price and make the customer pay, or if I should subtract it from the price and take it from my own pocket?

On a $47 product I either lose ~$10 on each sale to VAT, or the customer has to pay ~$10 extra for VAT if they're in the EU.

Going by my own experience, I hate it when the VAT is tacked on in the checkout and I have to pay more than people outside of the EU. The question is if enough people feel like me to make it more profitable to eat the VAT charge myself.
#exclusive #inclusive #owners #product #vat
  • Profile picture of the author ankitnagpal
    Hi,

    I also own a product: Press Release Submitter - The Best Online Marketing Software but I do not have to pay for VAT because VAT is required in EU only if the software is delivered by electronic/internet means. I offer CD shipping and VAT is waived off on the offer, in both cases.
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  • Profile picture of the author DeborahDera
    Which part of your market do you perceive to be larger - people within the EU or people outside of the EU? If inside, you're going to lose a huge chunk of profit once sales are totaled up if you include the VAT in the $47. If outside, it may not make a huge difference considering the number of people buying from the EU is not very high.



    Originally Posted by RichardF View Post

    Looking for some input on this. Since I'm in the EU I will need to collect VAT from EU buyers. The question is if I should tack on the VAT on top of the advertised price and make the customer pay, or if I should subtract it from the price and take it from my own pocket?

    On a $47 product I either lose ~$10 on each sale to VAT, or the customer has to pay ~$10 extra for VAT if they're in the EU.

    Going by my own experience, I hate it when the VAT is tacked on in the checkout and I have to pay more than people outside of the EU. The question is if enough people feel like me to make it more profitable to eat the VAT charge myself.
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    • Profile picture of the author RichardF
      Originally Posted by DeborahDera View Post

      Which part of your market do you perceive to be larger - people within the EU or people outside of the EU? If inside, you're going to lose a huge chunk of profit once sales are totaled up if you include the VAT in the $47. If outside, it may not make a huge difference considering the number of people buying from the EU is not very high.
      Definitely people outside EU, thankfully. I'd say only 20% or so will be from the EU. And yes, I will lose a large chunk of the profit. I can counter that by adding the VAT on top of the sales price, but then people in the EU will have to pay $57 instead of $47.

      In the end I only care about my bottom line. Adding the VAT on top will most likely decrease the conversion rate, but eating it myself will take out a chunk of my profits. The real question is which will cost me more in the end.
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  • Profile picture of the author TrafficMystic
    You only need to pay vat once your european sales hit the vat threashold... you vat only on eu sales if your in the eu... so you only start paying vat once that threashold is met and only for eu sales.

    So you need to estimate your eu sales for the year and if your going to go above the threashold then add it on top..
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  • Profile picture of the author RichardF
    Thanks TrafficMystic, but that only applies to certain EU countries, like the UK. Here in Sweden I have to pay VAT no matter how much I sell for.

    Anyway, I'm not planning on collecting it myself since that's a major hassle. I'm going to use a 3rd party for payment processing and product delivery, and they'll handle the VAT for me. Looking at Avangate right now, if anyone has any experience with them I'd be interested in hearing it.
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    • Profile picture of the author Thomas
      Originally Posted by RichardF View Post

      Anyway, I'm not planning on collecting it myself since that's a major hassle. I'm going to use a 3rd party for payment processing and product delivery, and they'll handle the VAT for me.
      You could use Clickbank (if your product is downloadable); they'll do the VAT for you too.
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  • Profile picture of the author TEMA
    I have found that when a customer sees a price for something like that then that is what they expect to pay. Adding the VAT on afterwards reduced my sales rate at one point.
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  • Profile picture of the author RichardF
    Yeah that's what I thought too.

    Thomas: I might consider Clickbank if I can't find a decent alternative. Just been in touch with Avangate and they seem reluctant to sell anything other than software. Fastspring looks good too but they don't allow IM products.

    Any other suggestions for similar services, that provides both payment processing and product delivery?
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  • Profile picture of the author gie grace
    Originally Posted by RichardF View Post

    Looking for some input on this. Since I'm in the EU I will need to collect VAT from EU buyers. The question is if I should tack on the VAT on top of the advertised price and make the customer pay, or if I should subtract it from the price and take it from my own pocket?

    On a $47 product I either lose ~$10 on each sale to VAT, or the customer has to pay ~$10 extra for VAT if they're in the EU.

    Going by my own experience, I hate it when the VAT is tacked on in the checkout and I have to pay more than people outside of the EU. The question is if enough people feel like me to make it more profitable to eat the VAT charge myself.
    - I agree! It really irks me having to pay a significant amount of VAT since I'm from UK.

    Can they not do it, like only VAT - inclusive for EU or something like that?:p

    I may be pushing my luck too far on that one. Lol
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    • Profile picture of the author RobRaw
      Tjena RichardF!



      jag håller på att starta företag här i sverige och har lite samma funderingar som du ang momser hit och dit, kanske vi kan komma i kontakt och

      snacka lite? jag sysslar uteslutande med Internet marketing och affiliate marketing, egna och andras produkter som sagt.



      Kan du maila mig på rob-raw (at) hotmail _ com???



      Skriv "Richard från worrior" som subject!



      Vi kanb säkerligen dra nytta av varandra båda två, gött med nån svensk att brainstorma med och så med.

      Jag har i nuläget bara utlänska partners.



      Hoppas vi hörs

      Hälsningar,

      Robert





      (To you not swedish speaking folks - I just asked this guy for contact.. Im from sweden as well)
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  • Profile picture of the author Robert H Cwik
    Originally Posted by RichardF View Post

    Looking for some input on this. Since I'm in the EU I will need to collect VAT from EU buyers. The question is if I should tack on the VAT on top of the advertised price and make the customer pay, or if I should subtract it from the price and take it from my own pocket?

    On a $47 product I either lose ~$10 on each sale to VAT, or the customer has to pay ~$10 extra for VAT if they're in the EU.

    Going by my own experience, I hate it when the VAT is tacked on in the checkout and I have to pay more than people outside of the EU. The question is if enough people feel like me to make it more profitable to eat the VAT charge myself.
    That's a tough pill to swallow. I'd say, for European sales, you either have to test or trust your gut feeling.

    You are afraid of your sales going down once you add VAT to your product price, on the one hand. And let's assume that this is the case and your sales will drop equal to the VAT amount (just as an example since they may drop down more), i.e. 25% max. VAT in EU. So, instead of selling 100 units you sell 75: 4700 - (75*47) = 1175 (this is how much you loose on those 25 sales less because of VAT)

    You "eat" the VAT, but your sales remain on the same level:
    4700 - gross from 100 sales ($47/unit)
    3760 - net from 100 sales (net of $47 on 25% VAT = 47/1.25 = 37.60)
    -------
    940 - this is what you lose on eating VAT yourself

    That's simple maths
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  • Profile picture of the author inconf
    Look at CB, they add VAT at checkout, you should add here, and make it clear in your sales page, VAT sucks, i've just been slapped with a massive bill, so whatever you do put that money aside. As stated though if your turnover is less than £70K you do not need to pat VAT.
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    • Profile picture of the author Frank Ayres
      Originally Posted by inconf View Post

      Look at CB, they add VAT at checkout, you should add here, and make it clear in your sales page, VAT sucks, i've just been slapped with a massive bill, so whatever you do put that money aside. As stated though if your turnover is less than £70K you do not need to pat VAT.
      Maybe you should read the whole thread first

      Thanks TrafficMystic, but that only applies to certain EU countries, like the UK. Here in Sweden I have to pay VAT no matter how much I sell for.
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  • Profile picture of the author John Taylor
    It's also worth considering the VAT status
    of your target market within the EU.

    If you are selleing to businesses that are
    VAT registered they can claim VAT back
    from legitimate business expenses.

    If, however, your target market is the
    consumer, the VAT is not recoverable by
    the buyer.

    If I was selling to the business market, I
    would add the VAT to the standard price.

    Selling predominantly to consumers requires
    a judgement call depending on how they
    perceive the price. As others have saaid, I'd
    run a test to see how VAT effects conversion
    rates.

    John
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  • Profile picture of the author zimzalabim
    Suggest best way to be certain is to seek advice from a qualified accountant/professional. They'll be able to tell you exactly what your potential VAT liability might be and how best to handle it.

    If you're in the UK and below the turnover threshold then there's no (I believe) legal requirement to register for VAT though once you do reach the threshold then there most certainly is...!

    If you are UK based - here's the link to the HMRC VAT page:
    HM Revenue & Customs: VAT

    Hope this helps.

    Andy.
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  • Profile picture of the author Tim_Carter
    Don't add the Vat in.

    I'm in Canada so have to charge GST to buyers purchasing while in Canada regardless of where they live.

    However Canadians expect to pay the GST so it has never been an issue with Canadian buyers. Paypal handles it all. Nothing to worry about.
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