Recently, there has been a lot of buzz in the blogosphere about VAT, or the European Union’s Value Added Tax. Many bloggers in the United States are confused, so I want to explain exactly what VAT means for US bloggers and how it will change the way you sell digital goods and services online.
Although VAT was enacted in 2003, the changes effective January 1, 2015 have brought attention to the impact on all non-European residents who sell digital goods and services to consumers within the European Union. So, if you have an online store on your blog and have customers in Europe, this means you… regardless of where you live. [SOURCE: GOV.UK]
As of January 1, 2015, there will be significant changes to the European VAT rules on sales of digital goods and services to retail consumers in Europe. These changes increase the VAT compliance burdens on all sellers, wherever those sellers are located.
Please note that the Value Added Tax is not based on the seller’s location but the rate is designated by the consumer’s country of residence and may vary greatly from country to country, reaching as much as 27% of the product’s value.
Being VAT Compliant
If you sell digital goods and services to consumers in Europe, you must follow the instructions for submitting the Value Added Tax.
- You must register as a non-resident seller for VAT prior to any sales to European customers.
- Even if the tax equates to only $0.01 USD, you must still submit payment.
- The VAT rate must be included in your retail price and not listed separately as a US state sales tax would be.
- Payments are submitted quarterly. To avoid having to pay each country individually, you can choose a simpler system for reporting with VAT MOSS. [SOURCE: VAT Mini One Stop Shop, UK.GOV]
- Information regarding the transaction must be kept on file for 10 years.
Many eCommerce plugins and websites are updating to include VAT compliance.
- Woothemes has announced a Woocommerce VAT extension that will collect and validate the consumer’s IP address and their country of residence.
- Shopify will be supplying you with the customer’s billing address and IP address for you to pursue VAT compliance. [SOURCE: Shopify]
- Easy Digital Downloads offers an extension to make VAT compliance possible.
- Ejunkie is trying to explain how to be VAT compliant while using their services.
How the tax is enforced upon US businesses
Several bloggers have touted that the European Union has no basis to command United States business owners to pay VAT. They have said that VAT will be impossible to enforce. Perhaps, but many analysts anticipate that other countries will enact a Value Added Tax as Europe’s model is receiving high praise.
- Canadian legislature is consider its own VAT. [SOURCE: The Globe and Mail]
- India plans to solidify changes to their VAT in April 2016. [SOURCE: Indian Express]
- Senate Finance Committee member, Benjamin L. Cardin, plans to introduce legislation for a United States VAT. [SOURCE: Lexis Nexis]
Sellers of digital goods need to settle into the idea and stop claiming ignorance as the European Union plans to tighten the enforcement of VAT using web bots to find eMerchants in violation. [SOURCE: Taxamo] The United States has already pledged to cooperate in several treaties and documents including the Economic and Technical Cooperation agreement between the US and Bulgaria in 1998.
What we [HMRC] and other EU tax authorities are doing is if we found that one of these businesses is non-compliant then through treaties arrangements that we have with the jurisdictions, through information exchange or debt recovery, we would then approach the authorities in those other states to take action to help us to get the debt paid.
Those arrangements are going to be reinforced, and strengthened, effectively in the coming months and years to make sure that there aren’t jurisdictions out there where someone could effectively hide and make those supplies without properly declaring.
Limitations to Europe’s VAT
What is included under the VAT changes? View a comprehensive listing of digital services and goods by Taxamo.
But what is NOT included?
A video is embedded above.
Here are a few important notes recorded by My News Desk during a Twitter Q&A with HM Revenue and Customs that was mentioned in the video above:
A2 What constitutes an e-service? #VATMOSS
An e-service is one that is fully automated and involves no or minimal human intervention. #VATMOSS
A4 Does #VATMOSS apply to web hosting, SAAS, cloud storage, analytics, online accounting, remote maintenance and web advertising? #VATMOSS
Yes if those services are automated and involve no, or minimal, intervention. #VATMOSS
A5 Does this mean I need to be VAT registered to sell ebooks? #VATMOSS
If you sell ebooks to consumers in other member states through own fully automated website this will be an e-service, so yes. #VATMOSS
A6 If I run a paid live webinar (human interaction) and have a free pdf download with it, is that liable under #VATMOSS?
No, the live webinar is not an e-service and the pdf download, provided it is genuinely free, will not be affected by new rules. #VATMOSS
A7 Is delivering part live, part downloadable content to customers around the EU exempt from #VATMOSS?
Live content not an e-service, downloadable content is. Depends on which part of transaction was principal element for customer. #VATMOSS
A8 If I have paid membership for my website and people can then get free online courses, is that a digital services under #VATMOSS?
If course is fully automated it’s an e service. If there is “human intervention” eg online tutors, live Q&As etc, it’s not. #VATMOSS
A9 What about virtual classrooms combining live webinars, videos, pdfs & human intervention? #VATMOSS
A virtual classroom combining all these elements would not be an e-service because of the amount of human intervention involved. #VATMOSS
A10 What if an e-course contains recorded videos & PDFs but is opened at specific times only + has live interaction? #VATMOSS
The inclusion of live interaction means that this is not an e-service. #VATMOSS
A11 If I offer coaching (human intervention) with an online course, how do I handle that to comply with #VATMOSS?
The inclusion of live coaching means that this is not an e service. #VATMOSS
You should read the complete Twitter Q&A transcript as it includes details on the VAT implications for Paypal, Etsy, Kickstarter, and more.
Follow VAT MOSS on Twitter for updates.
How to avoid paying VAT
graphic published with permission of Dave Walker. SOURCE
If you have an online store and want to avoid paying VAT completely, you have one option: Block sales to consumers living in Europe. Most eCommerce plugins have a way to limit the countries allowed to purchase through your store.
- You can block countries under the settings of Woocommerce.
- Tips and Tricks has an add-on to assist you in blocking countries in WP eStore.
You can also use a 3rd party eMarketplace such as Amazon, Etsy, etc. who assume responsibility for being VAT compliant for you.
Wow. I feel like I need to take a deep breath because this is quite a lot of important information, and I probably should have divided it into multiple posts. However, I remain determined to educate you for your protection and thought one thorough piece would keep you from plundering around Google looking for help in decoding this complex piece of legislation that will impact so many of us.
I truly hope you are ending with a clear understanding of VAT and what it means to US bloggers. Now, go make sure your blog is VAT compliant.
15 thoughts on “What Does VAT Mean for US Bloggers?”
in the comments on YouTube of the video you put in your post, someone asked about books in PDFs form that are emailed to the recipient. The girl with the cat ears responded that the email counts as human interaction so these products would be exempt from the tax. So as long as you email them out and don’t just have a download link on a page you should be good.
If the email is NOT automated. You would have to send a personalized email, and even so, it is a gray area. I would encourage everyone to not accept one person’s interpretation but to research the topic as the Q&A 7 stipulates if the PDF is the main piece of product, it IS under VAT rules.
It says that on the https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf
” (Merely communicating by email and sending attachments does not constitute Digital Services) ”
Also says it here:
“POTENTIAL WORKAROUND: If you MANUALLY email and MANUALLY ATTACH CONTENT then it may not be considered an e-service. HMRC stated this in an online discussion on Nov 27, 2014. YOU MUST HAVE A PERSON MANUALLY ATTACH AND EMAIL CONTENT TO CUSTOMERS IN EU (This could change)”
So yes emailing a download as an attachment by email personally is ok. Seeing how there is human intervention. Also noted in your post.
But l expect this to get refined down the road.
Otherwise great post.
Thanks for those links, Jonah! This is a big VAT mess.
So – from what I see from eJunkie, if you use “buy now” buttons on your site, it will still bypass the process that makes you compliant. Grrr….now I need to rethink what I’m going do (just when I completely revamped my store.)
That is what I read too. Seemed counterproductive to me, like they want to help but aren’t helping. I just thought I read it wrong.
[…] of his product sales to a third party platform to avoid having to deal with VAT. Tabitha Philen of Inspired Bloggers Network believes that the only option is to block sales to EU […]
Very glad you decided to keep it all in one post. I’ll be referring to it again to be sure I’m in line. Thank you for all your research.
So glad I could help, Melanie. My head is still spinning.
So the only reasons you gave for US companies complying were because other countries might someday enact similar laws (“many analysts anticipate that other countries will enact a Value Added Tax as Europe’s model is receiving high praise”) and the US might someday have treaties with other countries affecting this (“The United States has already pledged to cooperate in several treaties and documents”).
So we’re going to pay additional tax or block EU sales because someday, maybe, perhaps the US will have such laws? President Obama says he wants to raise taxes. Maybe someday that will happen so should we all start sending in some extra now?
And I’m not claiming ignorance, I’m intentionally recognizing the sovereignty of the US. If the EU uses web bots to find my store and they don’t like what it’s doing, then all they can do is block my web address in their country. I still don’t have to worry about it. That’s between their citizens and their government.
Actually, Doug, what I would say is the main reason to comply is that it is the moral and ethical thing to do. If you have a problem with rationalizing it, just don’t sell to citizens of Europe.
How is it unethical to ignore the laws of a country of which we are not citizens and that has no authority over us? There are all sorts of laws that countries have that we don’t ever consider because their laws are for their citizens. That’s how the laws of all countries work unless there is some international agreement, which requires a law to be passed here.
Now if a country has some law regarding tax that is the responsibility of the buyer, then it is a moral decision of a citizen of that country if they choose to disobey the law from the government in authority over them.
Look… this is not an old debate. I actually discovered a thread dated from 2002 where people were hashing out this same argument. “What right does EU have to impose VAT on US businesses?” There are international agreements, such as the treaty mentioned in the article between the US and Belgium, and I continue to search for more, but ultimately it boils down to this… if you are choosing to do business – albeit over the internet – in a foreign country, you are to abide within their laws. If you don’t like their laws, don’t do business there.
It’s not so much choosing to do business in a foreign country, unless we choose to have a presence in those countries. For those of us in the US with a US website, the citizens of a foreign country are coming to our store in our country and making a purchase.
Let’s say you have a physical retail store in Illinois and someone from Germany comes into the shop and buys some goods. Would you even think that you should find out where the customer is from, collect taxes, and send them back to Germany? Of course not! That’s the equivalent of what this VAT law is about for those who have no presence in the EU.
You were starting to scare me with the first part of this post – I thought you didn’t know the work-arounds! Thankfully you posted Star’s video. She is a rock star! I was never worried about VAT. I’ve been around long enough to know that crazy new laws need time to find their way. Never panic over these things, but do look for an answer. Thankfully Star found one for us. 🙂