This is a guest contribution from freelance writer Jawat Khan.
Ask any professional blogger and he’ll tell you that selling eBooks, eCourses, trainings, tutorials and other forms of digital products is one of the most profitable ways of making a sustainable income from your blog.
It’s not easy, of course.
You need to spend countless hours creating high quality content, responding to reader comments, building relationships, spending money on advertising and creating products that people would gladly pay for.
It’s real hard work. And anyone who’s been on this path knows its challenges, and the personal and professional sacrifices that it demands.
Unfortunately, it just got a whole lot harder.
The EU VAT-MOSS Legislation
The European Union has recently introduced a new value added tax (VAT) that’ll come in to effect from 01 January 2015. This new VAT will be applicable on any digital products that are sold to buyers anywhere in the EU.
And this is where it gets really tough for us.
The tax will be calculated on the basis of the buyer’s location, NOT the seller. So even if you reside outside the EU you’d be required to pay this VAT on each sale that you make to a customer based in any of the 28 EU member states.
So, for example, if you’re a blogger based in Australia and a buyer from Germany or any other EU state purchases an eBook from your blog, YOU will have to pay the VAT on top of your product price.
What’s more, you’d need to collect evidence of your sales that indicate the buyer’s location based on his IP address and credit card information. You’d then need to submit this evidence along with your returns every quarter.
Honestly, one of the best things about making an online income, for me, is the lack of administrative costs and unnecessary legal documentation. But with this VAT, all of us, the bloggers and digital sellers, would need to collect evidence and submit returns on our sales.
To make this process slightly simpler, you can register with any “Mini One Stop Shop” (MOSS) in any EU member state (UK or Ireland being the most convenient). Your VAT will then be distributed to the relevant countries according to their tax rates.
You are also required to keep the record of your sales, as evidence, for at least 10 years to avoid any legal problems in selling to EU customers.
All this is very complex legal stuff.
The objective of this post is not to give you any legal advice. I’m no expert myself. But I just want you to know about the potential repercussions of this law on your blogging income. You should definitely seek professional advice on this matter and study this law in more detail here.
So What Can Be Done About EU VAT-MOSS?
Being a blogger myself, I know you might be confused and upset by this law. Some of the most prominent freelance writers, bloggers and digital sellers have express public outrage on Twitter in reaction to this law. They’ve also started an online petition that is gaining momentum quickly. You can vote on this petition here.
But apart from expressing disappointment at this law, you need to do the following things.
- Consult with your ecommerce software provider and tell them about this development. You’ll need their help in collecting buyer data as purchase evidence. You need to collect buyer location data based on the IP address and credit card information.
- You need to keep this record with you for at least 10 years so that you can present it anytime it is required.
- You need to submit your VAT returns every quarter to MOSS.
- Or you can take the hard decision and stop selling to EU buyers completely to avoid any of these legal issues. But you’d need the help of your ecommerce software provider here as well, because you’d need to block buyers from selected countries on the basis of their IP address and credit card information. You can’t do it manually.
Several ecommerce software providers have made announcements on what they’re doing about this law and the additional requirements that it has brought with it. PayPal recently announced that they’ll be able to store buyer location with their API. But there hasn’t been any announcement from them about data storage and country blocking.
In the last week, Selz has introduced a series of features that cover all the VAT-MOSS requirements. By enabling the EU VAT-MOSS feature in your Selz dashboard, you can receive automatically degenerated reports about the exact location of your buyers based on their IP address and credit card.
Selz will calculate the applicable VAT rate in your buyer’s country, which you can add on top of your product’s sales price. It also stores this information for up to 10 years and lets you export it into an excel sheet for MOSS submission.
In case you decide to completely block EU buyers (approx. 507,000,000 potential customers) Selz allows you to apply country based restrictions on downloads.
Conclusion
There’s a hot debate in the blogging community about the EU VAT-MOSS that will come into effect from 01 January 2015. There’s still some confusion about its application and how it will impact bloggers and digital sellers from different countries. You can follow Twitter updates on this subject on #VATMOSS and #VATMESS hashtags. At the same time, you should make sure that you have the right tools to record the required buyer information for VAT submission, in case the law remains unchanged.
Jawad Khan is a Content Marketing Specialist at Quality Trade, a leading marketing and trading platform for B2B companies. Follow Jawad on Twitter and Google+
I hope that our law-makers understand that we need their support and that we need to work together instead of against each other.
If we are creating new laws and regulations, they should be to help entrepreneurship not fight it.
How exactly are they going to enforce this? I can’t see them going after the entire world. They are going to try this, fail miserably, and it will be forgotten. If no one ackowledges it, they have no power.
This sounds like a special kind of Internet tax that will not be enforced in United States. If it is enforced in United States, then this shows that will be a revolution to the way business is done on the Internet in the near future. What is the sales tax percentage they are proposing for bloggers to pay after selling e-books and digital products on their blogs?
This is a beautiful mess.
I’ve seen this discussed https://news.ycombinator.com/item?id=8657543 and http://www.woothemes.com/2014/12/handling-eu-vat-woocommerce/
Good luck collecting from non-EU members.
As a provider of a digital product based in America, I can’t imagine how this can be practically enforced.
EU customers are only a small percentage of my sales. So, it will probably be a cold day in… before I allow the responsibility of taxing the citizens of other countries to be shifted onto me.
For smaller businesses like mine (secondary income) it would be easier to just exclude EU sales.
The whole purpose of people buying and selling on the internet is
1. Cheap pricing since things can be sold faster in larger volumes
2. Avoid paying shipping
3. Avoid payment of traditional sales tax
The EU is bugging out with starting to charge a VAT tax. They have enough money already.
The IRS has required that citizens who happen costs develop to get, or improve fixed assets abide by new decline regulations. All citizens this pertains to must adopt these new restrictions for that 2014 tax year. The use is considered an accounting approach change and requires form 3115 to be filed. The planning of this sort can lead to charge and more hours for several 2014 dividends.
Woah! this law is surely not going to be welcomed by any Blogger. Why would someone pay VAT for selling their own content?
This new EU VAT-MOSS legislation is challenging and far-reaching. Most businesses affected have only found out through social media channels and good blogs like this one. There has been little official communication by the EU tax authorities.
A key feature is that VAT is seen as a tax on ‘consumption’ rather than ‘sales’. Because of this, “the jurisdiction in which the customer has its usual residence has the taxing rights over business-to-consumer supplies…” (OECD guidance – to which the US and other OECD countries have previously agreed). This means this tax which focuses on EU consumers should be complied with by anyone who sells into the EU from outside.
Since the EU announced they will be introducing this from 1st Jan 2015, Japan and Australia have also made statements that they are looking to introduce a similar scheme.
There are a number of technical challenges, like collecting ‘2 pieces of non-conflicting data’ from consumers and safely storing it for 10 years+, identifying the correct VAT rate before the sale is completed, accounting for VAT-eligible components of ‘bundled sales’ separately to the non-VAT-eligible components.
EU citizens have been writing to their politicians and signing a petition. In the US a related petition is now available for you to sign via this link: https://petitions.whitehouse.gov/petition/call-european-commission-suspend-introduction-new-eu-vat-laws-micro-businesses/VH1P82X0 If you could raise awareness of this in your own country it would be greatly appreciated. (Mervyn – a UK/EU citizen…)
Hi Jawat,
Hmmm….who’s the governing body? The EU? So, how do they have dominion, in my country of origin, where I already pay taxes? Like, the IRS deals with US issues, so what governing body will enforce these laws across the Universe? So like, is there an EU version of the IRS which will enforce these tax laws to sellers all over the globe? It doesn’t make any sense.
Bold move, which will inevitably fall flat on its face methinks ;)
Interesting to see the developments here, but when you completely change a system, or the logic, behind who pays taxes, you’re bound to be a good 30 to 50 years off from making it work.
Ryan
Hi there,
When I studied law (many years ago), it was not possible for one country to impose enforceable laws upon the citizens and residents of another country. If that has changed, where is their authority?
Sorry, but I live in Australia (where I pay taxes), and unless some European country decides to PAY ME to collect their tax for them, then I believe there is no obligation for me to comply.
There are clearly jurisdictional and discriminatory elements to this half-baked law, and given the economic state that some of the EU member countries are in, forgive me for NOT taking financial advice from them, on how to run my business.
L Graham, Australia (28/12/14)
I’m not sure this affects businesses located in countries outside of the EU. Your first link is to the TechCrunch article which seems to imply this is for the EU only. I’ve also done a little Googling, and much of the other info I’ve found indicates the same.
The biggest problem the EU tax agencies will have in enforcing this outside the EU.
First there is the problem of education: How do you get the worlds business people to know that they should register their business for VAT in every EU member nation? After all, if I’m happily doing business in Australia, who is responsible for informing me or my accountant about this?
Second, how do you enforce the collection of VAT, especially in countries that do not have a tax treaty with the EU? (That leads to the question, will some haven countries encourage online businesses to register there in order to avoid this completely?)
Third, what is stopping a EU citizen from using a proxy to disguise where they are buying from in order to avoid tax?
This is really confusing, it’s been hard for an average blogger to maintain a blog, moreover creating product to sell, now with this VAT stuff – it just make it even harder for beginner, it’s like we need to open an account department to take care of all this administration work.
Don’t worry guys. Even if this law is implemented, I am sure e-commerce scripts will make the necessary adjustments to make life easy for us. These things can be automated, I am sure. You can expect some people coming up with “EU-VAT MOSS help services” in the near future. Maybe the next big niche :-) I won’t be concerned about the financial implications. Anyways the margins are huge for digital products. You just have to make a few more sales.
Better concentrate on making your blog better so that you are in a position to sell. For beginners, don’t waste too much time. By the time you are in a position to sell, something will surely be worked out.
For established marketers, I am sure you guys will find a solution.
Regards
Neil (Blogician.com)
Can be a good way to earn but such unfavourable laws should be made keeping in mind the hard work of writers.
there should be a minimum revenue threshold so that we microbusinesses won’t get choked to death by this legislation. But most EU nations refuse to set one.
Also, this will go into effect for physical goods as soon as 2016, so don’t think you’re safe if you don’t sell digital items.
This law is very typical of the EU box thinking when it comes to business. I used to live there and saw what business owners had to go through, which is truly unthinkable when you are operating in a country where entrepreneurial are promoted. The sad thing is that on the long run everyone looses. With those high taxes I can see bloggers with small EU purchases will be better off blocking. But when we start doing that we undermine the freedom of the Internet that it stands for. Not to mention that many e-products are necessary aids for businesses for example. What a disappointing news for the new year.
Horrible news. But I suppose it applies only to direct sales and not when you just feature affiliate links or Google Adsense ads that are seen by European buyers. I mean, the affiliate network should handle the payment of the tax. Right?
Marija,
These rules currently apply to ‘business-to-consumer’ (B2B) transactions, not ‘business-to-business’ (B2C). However, the main test applied to classify you as being a business is when you can provide the seller with a VAT Registration Number (VRN).
If a buyer can’t supply a VRN then the tax authorities recommend that sellers treat the buyer as a ‘consumer’ and not a ‘business’, and so apply VAT (at the rate current within the consumer’s country).
If you sell by using an affiliate link or Adsense then you probably avoid having to comply. This is because the digital product is being supplied by someone else and they will be classed as the ‘supplier’ rather than you.
However, you need to be careful if offering your own digital products through a third party platform. Some of them are declaring that they do not consider themselves to be the seller, saying they are merely a platform through which you advertise and fulfil your orders. This has brought some of them into conflict with the tax authorities who say that they should be classified as the seller. This situation is not resolved yet.
You should be safe if you sell through a third party which has publicly stated it will take responsibility for EU VAT.
It’s going to be *interesting* to see how this all works out in practice…
Apologies, (B2B) and (B2C) abbreviations should be the other way around. My brain has been in a bit of a spin lately as I’m seeking to keep up with all the latest discussions on the subject…
Yep, that stinks. Basically the EU see this as a really good way to increase revenue easily for them as the digital market place continues to gain momentum. I feel sorry for those of you in other countries who have to shoulder our bagage! however, heres the thought. Since Amazon in the USA operates the Kindle publishing (KDP), here in the UK we have to say that we are not USA citizens. I see that digitally VAT is not exempt off ebooks sold by amazon (though print is…go figure!). But Amazon applies it and sorts it out. The whole question, then, isn’t about selling our own content. I could do with a response here to THIS question: do I have to record my customers if I am simply getting and affiliate fee? I can create content, upload to Amazon, then point to Amazon and be paid an affiliate amount, not be paid directly. Therefore VAT remains a problem but only for amazon, and I just need to do my usual personal tax thing.
If you are outside the EU selling into the EU, you should’ve been paying VAT on digital sales since 2003. Just saying :)
No… we shouldn’t have been.
Citizens are bound to the laws of their own country… not the laws in a foreign land.
The internet doesn’t have physical boundaries. Electronic downloads aren’t the same as physical imports/exports.
My website is owned, operated, and governed by American laws.
I’m not doing business in a foreign country when someone from that country “visits” my site and then buys something from my digital store.
They have come to my site from their home country… not the other way around.
If their country demands a VAT tax on something bought out of country, then the burden falls on the government/citizen to resolve the issue.
I have no inclination to burden myself with the laws of another nation when one of its citizens is doing business with me in compliance with my country’s laws.
What will you do when the EU blocks credit card companies from processing European sales to your Website because you don’t collect VAT? Take Euro checks and money orders? Hmmm…
This law is making it more difficult for regular bloggers. i hope this law should be stopped
I heard a little about EU Vat moss. But After reading this blog, I better understand what will actually happen if This law is going to be active. I am a new blogger, but this type of rules discourage us a lot.. (
Goverments are starting to understand that their is a really big amount of money spining on the internet,and it grows on daily basis year by year.Everyone just wants a piece of the cake and looks like they have also entered the que to get their piece of cake.Where can we sign that petition against this crazy law?I think they can’t really rely on the information that goes through the internet because a lot of people surf anonimously using proxy and vpn services which can make them look they came to your website from some EU country,but they reside in lets say Australia.If the buyer buys with paypal registered to let’s say UK,and the server information shows that he visited your website from US (using a vpn service),what happens then?I guess it isn’t really a thing they could lay their hands on because internet isn’t the safest place to be,there are many people that you can’t track down,someone hacked my gmail account few months ago with my youtube and everything,he couldn’t been track down.They should consider many facts before starting to even think about taxes like this.
ahh this is such a pain but thanks for the heads up. Will the VAT be automatically applied if you have an ebook or course setup through gumroad?
I hope that our law-makers understand that we need their support and that we need to work together instead of against each other.This law is making it more difficult for regular bloggers. i hope this law should be stopped.If you sell by using an affiliate link or Adsense then you probably avoid having to comply. This is because the digital product is being supplied by someone else and they will be classed as the ‘supplier’ rather than you.How do you enforce the collection of VAT, especially in countries that do not have a tax treaty with the EU? (That leads to the question, will some haven countries encourage online businesses to register there in order to avoid this completely?)
hi , your blog comment site is best , thanks
It is really wrong for the EU to make such a law. And the VAT being payable based on the buyer’s location is like telling bloggers to quick what they know how to do best. From my point of view, this will not only affect residents in those EU countries due to their limited access to digital materials, it’ll also affect the countries as their IPs gradually get blocked by most ecommerce sites.
This news is somehow discouraging.
This is very tough on all small businesses in the digital world, but the EUVAT (which is a sales tax by the way) changes are part of a bigger movement – Japan is introducing its equivalent in April and the USA passed its own Digital Sales Bill (which lapsed, but this will come back again) http://www.marketwatch.com/story/prepare-for-more-taxes-on-apps-e-books-and-movies-2014-03-12
All of this comes from international treaties – the USA agreed to EUVAT applying the way it does and the EU will agree to USA digital sales tax come the day.
Ultimately the USA and the EU will come to some kind of reciprocal digital sales tax arrangement and then (but not today) you may find the IRS is enfocing the USA end of the bargain and HMRC the UK end, etc.
Thanks for a great summary of the implications of the VAT tax in 2015. It will be tough for indie ebook authors to decide whether to add the VAT on top of their price (like they’re doing at Amazon) or to “eat” the tax like we have the option to do at Smashwords.
This tax may be cost prohibitive to sell globally. So one option if you don’t want to be bothered with this tax is to not sell to people in the EU. I know many of my clients who choose to only sell to people in the United States. Just set your e-commerce shopping to sell to the countries that you want to sell to.
Most people are unaware that there are laws here in the USA about paying “use tax,” not only for businesses, but for individuals too. i.e., you live in one state and buy a pair of shoes from another state. In a lot of counties, you’re supposed to pay sales tax on that sale. But no one does and it’s not enforced. Being required to pay the taxes of another country, union or whatever is ridiculous and it’s not going to work. If you’re in the USA, don’t even think about getting bullied into collecting taxes for the EU, just absurd.
Hello,
What platform do you recommend for selling eBooks?
I looked at Selz for the VAT Moss benefits, but it doesn’t seem to use PayPal at all?
I suppose this is a forced way to encourage exports and discourage imports. Or slightly dampen the intra-EU commerce. Sure, sometimes, one needs to buy parts to create a product.
As for startups, they’re discouraged to appear or spin off new business lines and encouraged to stay in the same line that proved succesfull.
That’s exactly what EU needs: printing money and dampen trade (or work).
But they had it coming since 2006.
Also, maybe they count on collecting fines from non-compliant businesses.
Thanks for a great summary of the implications.This tax may be cost prohibitive to sell globally.I agree with you more after seeing this, excellent post. Keep it up…