Digital VAT

If you sell B2C digital products online – that includes PDFs books, music, memberships, courses or just about anything – you need to be aware of EU Digital VAT.

This law applies whether or not you meet the threshold for standard VAT.

This is law was introduced to stop large companies (Amazon, Apple, Google, etc) registering their businesses in tax havens to avoid paying taxes on digital products.

The law means that if a customer from the EU buys a digital product, the seller needs to:

  • Charge them the correct rate of VAT for the country they’re from
  • Collect at least two pieces of non-contradictory data that prove the customer’s location (IP address, billing address, etc)
  • Store this data for 10 years
  • Register to pay VAT in that customer’s country
  • Pay the collected VAT to the country’s tax system

There’s more information on the GOV.UK website.

Note that the data may need to be collected to prove that VAT didn’t need to be collected on a purchase.

Sales threshold

Until the UK left the EU, businesses had a €10,000 sales threshold. This meant that business owners were exempt from paying or collecting this data if their digital sales were under this figure.

The UK was also part of the VAT Mini One Stop Shop (VATMOSS) scheme. This let business owners declare and pay the VAT on all digital sales to EU customers in a single place.

From 1st January 2021, this is no longer an option. Instead, businesses either need to register for VATMOSS through an EU Member State or register in each country individually.

Exemptions

The obvious exemption is if a business is selling digital services to another business. However, the onus is on the seller to prove that the sale was made to a business, which is partly why lots of digital service sellers choose to collect VAT numbers.

Another key exemption is digital products that include a live element, for instance a webinar or live Q&A. For more information, see the GOV.UK website.

Workarounds

These laws are quite technically difficult to comply with. It’s also surprisingly rare to come across services that help sellers comply.

Two services that are worth noting are:

  1. Gumroad
  2. Payhip

Both of these collect and pay the EU digital VAT for sellers, completely removing this headache.

For a comparison of the two services, see this article.

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