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Digital sellers: could you be facing an EU fine?

by  David Dwyer on  26/02/2015

Be aware of the VAT implications of selling digital goods online

Do you sell digital products or services to customers in the EU?  If so, you're probably aware that you now need to charge them VAT at the rate prevailing in their country.  It sounds like a pain in the neck, and it is if you're not geared up for it, but it's actually not that difficult to set up a system that makes the process reasonably hassle-free.

First you need to know what countries charge VAT at what rate for your e-product - and there's a lot of variation.  The EU provides a rather complicated but very thorough and up-to-date table here http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf. An easier-to-read version can be found at http://www.vatlive.com/vat-rates/european-vat-rates/eu-vat-rates/; this site appears to be updated regularly but it would be worth cross-checking.  The rates need to be built in to your online invoice so the correct one is filled in automatically at the time of purchase.

A further refinement to the form-filling nightmare is that you need to charge the correct rate for the country in which the product will be consumed, so if you're selling to a multi-national company you're going to have to ask some questions before invoicing.  You can't just assume that the product will be consumed in the company's country of registration.  It's the same if you're selling to someone who is, for example, on holiday abroad when they purchase.  Your digital invoice needs to include some way of checking this.

If your customer's a consumer, you simply charge them at the going rate in their country.  If your customer's a business, though, you need to get their VAT registration number.  If they have a valid number you don't have to charge them VAT, because it's assumed that they'd claim it back; not charging it in the first place saves a lot of time and bureaucracy.  (Even the EU has its moments of sanity.)  If they don't have a VAT number, or the one they give you is invalid, you charge them VAT at the appropriate rate.  If you're registered for VAT, you can check the validity of a VAT number here http://ec.europa.eu/taxation_customs/vies/.

Which brings me to the next point: if you're going to sell digital products to anyone in the EU, consumer or business, you now have to register for VAT.  There is no longer a lower threshold.  Every seller of digital products, however few they sell in a year and however little they earn from them, has to register and must then charge VAT for everything they sell, whether it's a digital or physical product or a service.  There is one upside to registering - you can reclaim the VAT you pay on everything for your business, from copier paper to company cars.  

If you do sell digital products and you need to set up an e-invoicing system to take care of all this, please get in touch.  We know how to do it without it costing you an arm and a leg - or a fine from the VAT Inspector.  

David Dwyer is Managing Director of Inspire Web Development. He has years of experience in a range of web and IT roles plus seven years in sales and marketing in a blue-chip FMCG company. David's academic and professional qualifications include a BA (Hons) in Business Economics (Personnel & Ergonomics) from the University of Paisley, an MSc in Information Technology (Systems) from Heriot-Watt University and PRINCE2 Practitioner-level certification. He is also an active member of the British Computer Society, Entrepreneurial Exchange and Business for Scotland.

Follow Inspire on Twitter @inspireltd and @developersos


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