VAT COMPLICATIONS WITH YOUR DIGITAL GOODS AND SERVICES
The basic complication with VAT is that because companies like Amazon would operate their sales from countries with the lowest VAT rates the EU was forced into changing the law so that companies would have to pay at the rate of the buyer’s country VAT. This has caused a huge problem administratively for micro online companies. This is mainly because the new laws force any automated sales of digital goods (like eBooks) to be registered, pay and fully comply with the new EU VAT rules. One mistake and the tax authorities can fine an undefined amount of money. This has effected me because I wanted to sell eBooks on my site but can see it would be impossible. I could never keep up with the accountability. So my solution is to only sell to the UK and all non-EU countries (where no VAT needs to be paid as I am in the UK unless I earn over 83K as of 2015) and to use a third party to sell in the EU and world wide. That way, I avoid all VAT registration and only in the non-UK EU countries will the third party deduct taxes. I can sell all my other products such as book cover design because they are not automated services. As long as I physically adapt my book covers and do not sell them as templates, then they are not automated sales and do not fall foul to VAT charges and necessary registration. So my advice to book cover designers, at least in the UK, is not to offer templates. Just up the price a little and offer different colour schemes and text schemes to book covers where you have determined the layout and imagery.
If you are in the USA or any other non-EU country you will need to adhere to paying VAT on your automated digital goods. So beware. My advice is to adapt your selling strategies and products. Please see http://www.turbineroom.com/2014/im-us-whatll-happen-just-ignore-eu-vat-changes for more information and additionally do backup google research.
What is VAT?
VAT is a tax on the sales of certain goods or services. The rate sometimes varies depending on the type of goods or services, and sometimes certain goods or services are exempt (postage stamps and postage services for instance). The rate of VAT charged is a percentage of the sale added to the selling price of the item. So for instance, in the UK the Basic Rate of VAT is 20%. Thus, if I purchase an item costing £60, £10 of that price would have been VAT.
VAT Registered businesses collect the VAT and then pay the VAT they have collected to their tax authority. They can deduct from the amount due any VAT they themselves have incurred buying items for business use.
Disclaimer: This information is based on an interpretation from online information. Please check all business matters relating to VAT and other TAX with your accountants and your country’s tax authorities (see HMRC if you are from the UK).