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  • [Reality Check] The EU VAT (Sales Tax) Situation...and You by Jim Brown
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[Reality Check] The EU VAT (Sales Tax) Situation...and You by Jim Brown
Contributor
Written by
Zetta Brown
April 2015
Contributor
Written by
Zetta Brown
April 2015

This week on [REALITY CHECK] and in honor of the tax season, we will be discussing one of the less-glamorous topics to be found in publishing: taxes! Or, to be more specific, the European Union Value Added Tax aka EU VAT.

If you are an independent author or a small publisher and sell ebooks online, you need to read this article. This is need-to-know information that may affect your bottom line whether you sell direct to the public or not.

To tackle this subject, my husband Jim Brown has written the following post. Born and raised in Scotland, he's quite familiar with VAT, but please note the following disclaimer.

 

The EU VAT (Sales Tax) Situation...and You
By Jim Brown

©2015

Disclaimer: Jim Brown is not a business lawyer or tax expert and is not making recommendations as to what action you should or should not take. This article is for information only and is based on several weeks of research prior to the EU VAT deadline and afterwards. Any actions you take(or not) are at your own risk. You should seek your own professional, legal and/or tax advice where appropriate.

In January 2015, the European Union started its new VAT (Sales Tax) guidelines for businesses selling certain eServices to member states of the European Union (for the purposes of this portion of the retail industry, we’re talking about automatically delivered eBooks. NOT print books, or eBooks manually emailed to end-users). This was aimed at giving member states the ability to reclaim VAT on sales to end-users in their respective countries. Now, in actual fact, there’s nothing new about this at all. It’s always been the case that businesses should have been charging VAT to EU end-users. The difference now is that the EU have put measures in place to allow that money to be collected and paid to each member state.

How does this affect me?

If you are a self-published author or small business owner who sells direct to people in EU member states and:

  • you have already registered with the EU and
  • you are reporting quarterly as required, and
  • this is your first time hearing this, or you just ignored things because you felt it never affected you,

then you’ll find this next bit rather interesting…

If you are selling ebooks direct to EU users from within a member EU state, then you have already registered and should be following the guidelines. If you haven’t, then you could be in a whole lot of trouble because you will be the member states’ first targets.

But if you are a non-EU seller and that is to say:

  • you sell from your own website and/or
  • you are set up as a small business to sell your own books or the books of others,

then you are technically liable if someone from a EU member state buys your book(s). You have some decisions to make if you haven’t already registered with the EU.

VAT (Sales Tax) in the EU ranges from 3% to over 20% depending on each member state, and it is INCLUDED in a selling price—not added to at the point of sale like in the US.

For example: You sell a $5 ebook from the US to someone in the EU. $1.00 of that could be claimed as VAT. But before we go any further, we need to know if non-EU business or authors should be worried. Let’s consider this fact first:

  • If all you do is sell your ebooks via existing third-party platforms like Amazon, Apple, Nook, Kobo, Smashwords, etc., then you have nothing to worry about (except perhaps adjusting your prices if you haven’t done so already). These platforms have already complied with the EU directive, and as the seller, they are liable for compliance.

Therefore, if all your sales fit snugly into the above, then you are already fully compliant.

If you do sell direct to end-users... then this is where the issues exist. These new EU VAT directives give member states legal “sovereignty” over the VAT on any qualifying sale. What this means is the member state has the right to claim it.

OK so far? Well, it’s going to get more complicated. An EU member state can come to you and inform you that they suspect you have been selling to their residents. Fair enough. They’ll have Internet bots going around the ether checking websites (hinted at in the dire warnings of the text of the new directives), but from everything I have gathered about this, that’s about all they can do—right now.

You see, this is not even an EU law, it’s just a directive, but it is one that can force EU businesses to comply, and there are stiff penalties for non-compliance. But for overseas sellers, no such thing exists. An EU member state may write to you, they may even make demands and threaten you, but they cannot bill you for “due VAT” without knowing what you may, or my not, have sold. To do that, they would have to audit you, and for to happen, they need the full cooperation and assistance of your government’s tax authority. Right now, that kind of cooperation and assistance does not exist in the US, Canada, nor from what I can tell, any non-EU country.

Yet.

So, despite the dire warnings and strong language regarding possible “million Euro” tax penalties, the fact stands at the moment that there appears to be no way for EU member states to actually claim the VAT from non-EU businesses, sovereignty or not.

Sites like www.taxamo.com made big claims and warnings about non-compliance, especially for non-EU businesses, on the run up to the deadline for registration, and while the information they supplied about the directives and what businesses should do are very accurate and helpful, they are in the business of selling software that helps you collect and pay the VAT. Their motives were quite clear, and the language/tone uses in their articles were certainly weighted towards making you fearful of the “consequences.”

So What Should I Do Now?

Nothing, if you sell exclusively through online retailers. You are only liable if you are the direct seller. If you are, then, all things considered, you may have the following options.

1) Register with the EU to collect and pay the VAT. But consider this:

  • The directives demand that you verify the location of every purchaser by way of two methods of validating their IP address.
  • There are almost 30 members states—each with their own VAT rate. You would have to report to—and pay—each individual one, unless you register with a MOSS (Mini One-Stop Shop) a one-stop VAT reporting method. You pick an EU registration state and sign up through their MOSS.

2) Stop selling to EU-member states. A distinct possibility for many, especially if you sell very little to EU states. You still have to work out the buyer’s location of course, so you can block a sale if need be. It may not be enough just to have a message on your site saying you do not sell to EU states. Your shopping cart probably has an option to obtain locations via IP addresses.

3) Ignore it. There’s a lot of people doing this already. In fact, how did you hear of this new directive, if at all? For example, the US government has said nothing to US businesses regarding these directives. No surprise, really. The US would like to keep money in the US, not being sent out of it. However, just because there appears to be no current way for the EU states to even check up on non-EU businesses doesn’t mean it will stay that way. If Uncle Sam can collect back taxes, who says the EU can’t and won’t in the future?

Japan is currently putting the final touches to its own directives to grab their share of sales tax (currently 8% in Japan) from non-Japanese sellers.

What does the future hold?

We are slowly but surely on our way to a global taxation scheme, or set of schemes. The eyes of many countries (including the US and Canada, no doubt) will be on the EU and observing how successful their directives are in collecting VAT from qualifying sales. If there does end up a global set of tax schemes—probably similar to the way certain countries have income tax treaties to make sure you are taxed somewhere— it could be a logistical nightmare for small businesses and direct-selling authors.

As far as resources are concerned, there’s a lot of info to be had from the government websites of EU states, but little is available outside and aimed at non-EU business. The www.taxamo.com does have very informative articles, which do explain things accurately, except for the key subject of just how they plan to collect from non-registered, non-EU businesses!

 

Jim Brown is the founder/owner of JimandZetta.com, providing customized publishing services for individual authors and publishing companies since 2008. He has personally converted over 8,000 manuscripts into various ebook formats. Jim has been a publisher of ebooks since 2003 with his publishing houses LL-Publications and Logical-Lust Publications. Former secretary, and vice president of EPIC (the Electronically Published Internet Coalition), in addition to his publisher services, Jim is available for guest blogs, speaking events, and industry consultation.

 

©2015. Zetta Brown. All Rights Reserved. Got a [REALITY CHECK] about the publishing life to share? If you would like to be a guest on my blog, please friend me on She Writes with a message! :)

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Comments
  • Trisha Faye

    Excellent! Thanks for an informative post.

  • Jim Brown

    Many thanks for the comments so far :) Yes it's pretty telling that some/many won;t have heard about this because non-EU governments really haven't shown an interest. In fact, even in the UK the HMRC (UK's tax authority) came under fire from all small publishers for failing to inform them of impending radical changes to VAT rules in Europe until too close to the registration deadline, and I believe the UK have actually made a few recent changes to soften the impact on sellers. Tax is one of those undesirable monsters we face. We usually don't know enough about it, and it jumps out to atack us when we least expect it!

  • I knew about the VAT tax in January but I'm lucky (I guess, though another tax is not welcome after I already pay 35% tax on any and all the books I sell right off the top because I'm considered self-employed and must pay the back half of SS taxes until I'm my full retirement age of 66) because I sell through Amazon, D2D and Audible and they take care of the VAT taxes for me. The emerging problem I see right now -and it's getting worse every year- is everyone is taxing me and my husband in so many ways on so many levels. Income tax, sales tax, 35% of my books in tax (and I don't make that much and neither does my husband), state and local taxes...it all adds up. I'm waiting for the day that all the taxes collected from us equals what we make...right now it's getting close. Yet no one talks about this over-taxation in America. Why not?

  • Annette Drake

    Very helpful information. Thanks for sharing.

  • Zetta Brown

    Hi Cate!

    I hate numbers too. My math acumen stopped after long division. I defer to Jim when it comes to VAT because it was all new to me when I lived in the UK. Plus, their tax system is different (and easier, if you ask me) than in the US.

    In the US, each state determines its own sales tax, and then federal taxes is a different animal. Since we don't ship physical goods internationally, we don't have to worry about customs and duties...except when we travel internationally and bring stuff back, as you do. :)

    Not too long ago, this EU VAT was creating a whole lot of anxiety amongst the publishers we know and it was hard to determine what to do and when--if it was necessary at all. But Jim likes digging into this stuff and then translating it for me. LOL