Tuesday 25 November 2014

Digital Downloads and EU law- Stuff you need to know

No pretty pictures today, instead, tax facts and info- hmm, really got your attention with that!  Read on, this is stuff you need to know.  In January, a European law comes into effect that impacts on digital sales from anywhere in the world to Europe. Why am I mentioning this?  If you buy or sell PDF sewing patterns, video tutorials, ebooks etc this is going to have some sort of impact on you.  

You can read a concise  explanation and a quick break down of the implications here.  It fundamentally means that for all digital sales to European customers that VAT is calculated at the customer's country, rather than the seller's country.  The rate of VAT varies hugely across the EU.  There is the option in the UK of registering for VAT with MOSS- Mini one stop shop.  At present, you only have to register for VAT in the UK when your taxable turnover reaches £81 000.  Once registered, quarterly VAT files would have to be prepared and ultimately the costs for each country involved in a transition would be worked out and then paid- in the currency of that country.  For the sales I am involved in for my own patterns and Sew-Ichgio, this level of record keeping and accounting ( I would need to pay for accountant services I think) is way beyond the income I receive, it is way way below £81K!

For  small businesses, it looks like a solution is for a third party to offer an internet portal/shopping cart which automatically calculates the VAT for the customer's country at point of purchase and takes liability for that.   This is not available yet.  It is going to be a race to see who will offer this facility first as there will be a lot of sellers waiting.  However, there seems to be no rush from Etsy, Craftsy or shopping cart providers like E- Junkie.  Each of those links takes you to their responses to this, I couldn't find anything for Craftsy. Otherwise, it seems there is not much more we can do.  This change in the law takes out the option for people to add a Paypal button to their webpage or use  a shopping cart/download provider like e-junkie.  Once there is a suitable market place provider that can offer this, everyone's prices will need to increase because their fees will go up to cover VAT and administration of the service.   I am imagining a developing situation with this next year with the hardest bit being at the start of the year when VAT liability kicks in on your first sale of 2015.  Lots of sellers will not be able to sell to European customers until a solution is found and it may put some sellers off permanently and they will just sell outside of Europe.  

If anyone else has other ideas on how to deal with this situation please leave a comment.   

Helpful reads on this topic:

sib blog


  1. There is a petition on Change.org https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products and there is growing interest from the newspapers, so hopefully something with spark a change and bring in a minimum threshold...

  2. Wow, thanks for bringing this to our attention, Kerry! I have been following some of your links (and their links), there is a lot of uncertainty about all this. It is a complex business, and I don't think it was initially meant to affect small businesses like PDF pattern sellers, but it seems they will be affected just as much as multi million dollar companies.
    It seems that the only way out is to either to find a platform that deals with this for you (but it would probably mean price hikes), or to send the patterns with a stamp on them (physical goods are not affected). Another way could be to send each individual item by email, but it is unclear whether this "personal approach" would be acceptable in the new rules, and it is a lot of work...
    I'll be reconsidering my way forward with all this in mind :-(

  3. It's pretty much guaranteeing people won't sell like this any more! I did notice the other day whilst browsing on etsy that one seller in the EU said that prices didn't include VAT and VAT would be automatically added to the cart of anyone buying within in the EU. No VAT would be added for those outside the EU. I'd never seen this for the EU before (Only some US states mentioning sales tax would be added if you were in the same State.)

  4. Thanks so much for posting about this, I had no idea! I have been looking into it today and it just seems to get more and more confusing the more I find out. I've already seen notices from digital sellers saying that they will be ceasing operation from 1 Jan 2015 until further notice. So sad, and so unfair.

    I know PayPal allow you to input different taxes for different countries, but not being GST registered (I'm in Australia) I'm not yet clear on specifics, having never used the feature. And how to keep up with the 65 different VAT rates across the 28 countries and all the laws about what has to be shown on invoices with regards to price and tax, whether prices displayed have to include tax... There is certainly a lot of research to do.

    I did see that there is one company at least selling an EU VAT compliance solution: http://www.taxamo.com/

  5. Might be worth reading this: http://onemanbandaccounting.co.uk/eu-vat-changes-2015/

  6. I am closing my store for EU residents per 1 st of January. It really saddens me and I wonder at this point whether I should continue at all....

  7. You might find this useful http://ysolda.com/blog/2014/11/26/they-didnt-know-the-impact-of-vatmoss-on-really-small-businesses


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