Anybody running a business, or even just living, in the EU or most any nation will be familiar with VATs (Value-Added Taxes). However, there have been recent changes to the VAT that must be paid on digital goods within the European Union. This applies to any business that sells digital goods in the EU, regardless of where the seller is located. As a business owner, it is your responsibility to stay informed about all the legal changes wherever you do business.
What are VATs?
Value-Added Taxes, also known as GSTs (General Sales Taxes or Goods and Services Taxes) is a consumption tax on the purchase price of an item (or service) purchased by a buyer. For the seller, it is a tax on the value added to a product or service in order to turn a profit. VATs are very common and are present in many nations and jurisdictions. However, every government calculates their VAT differently, so the amount of tax varies from place to place.
What are Digital Goods?
According to the new EU legislation, digital goods include broadcasts, telecommunications, and services that are supplied electronically. PDF documents automatically emailed to customers, automatically downloadable stock photographs, VoIP credits, downloadable software, online courses with downloadable videos (but not live webinars), and electronic and online media including music, videos, and ebooks are all examples of digital goods subject to VATs. Gift cards sent online are not subject to the VAT.
What Does it All Mean?
The takeaway from all of this is that digital goods sold in the EU are subject to a VAT at the rate prescribed by the governing body of the state in which the seller is located. For example, let’s say you are the proprietor of a business based in Portugal that sells ebooks. If a resident of Germany buys one of your books, then you must charge a VAT at the German rate of 19%. To ensure you are billing the appropriate VAT, you must acquire two pieces of identification from the buyer, such as a billing address and an IP address. It is your responsibility to either register for VAT in every EU country in which you do business, or register for Mini One-Stop-Shop (MOSS) in the EU country in which you reside. Your local tax authority can provide you with further details on this process, and help you determine if these new rules affect you.
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