Warning for those who sell ebooks directly (VAT)

girlyswot · Nov 25, 2014

This doesn't apply if you only sell through retailer sites (Amazon, Smashwords, B&N etc.).

But if you are selling any digital content or services (ebooks, ebook covers etc.) then you need to be aware of the new EU VAT (sales tax) rules which will apply from Jan 1st. These rules have implications for digital sellers anywhere in the world.

1. If you make a sale to someone in the EU, you are liable for VAT. Every one of the 28 countries has its own VAT rules and you will need to be compliant.

2. If you don't make any sales to EU buyers, you may still be asked to prove that this is the case.

3. The easiest way to be compliant with (1) is to register for a Mini One Stop Shop (MOSS) which will collect VAT and remit it to the relevant countries.

4. There is no threshold level for VAT on digital sales. You are liable as soon as you have sold anything.

5. This means that, if you are in the EU and you register for a MOSS, you will almost certainly have to register your whole business for VAT. Which means you will be liable for VAT on everything you sell and will be subject to a whole lot of extra red tape and accounting.

In short, the advice seems to be that if you sell ebooks directly from your own site, stop doing so from Jan 1st. Or at least, make sure you don't sell any to people in the EU and make sure you have records to prove it.

Ironically, the laws are supposed to be cracking down on Amazon and similar companies who evade tax by basing themselves in Luxembourg and other countries with low sales tax. The effect is likely to be that small online retailers will be forced out of business.

I am not an expert. More information all over the place but see here for a good summary of the issues: http://onemanbandaccounting.co.uk/eu-vat-changes-2015/

Note: none of this affects the sales of physical goods. You can still sell paper books from your website without any problems.

Old Hack · Nov 26, 2014

Thank you--that's really helpful.

Twick · Nov 26, 2014

How annoying that it only affects e-books! I suppose that's because they can collect during delivery of physical products.

I agree that this appears to make it unadvisable to sell e-books to the EU.

RedWombat · Nov 26, 2014

Yikes! Thanks for posting, OP--I had no idea!

slhuang · Nov 26, 2014

Oh, drat, I was going to try to start selling direct this year. There goes that plan . . .

Thanks for the heads up, girlyswot.

girlyswot · Nov 26, 2014

Well, it's possible that it might get resolved. A lot of people are pushing for a threshold to be introduced, which would allow small businesses to avoid the cost and the red tape. But it's the EU. It doesn't move fast, even if it decides to move at all.

Parametric · Nov 27, 2014

Thanks for this thread - very useful information. I need to chase this up, since I'm not sure if my editing work counts as a "digital service" - I have clients in the EU.

Twick said:
How annoying that it only affects e-books! I suppose that's because they can collect during delivery of physical products.

Paper books are zero-rated for VAT (ie. an 0% rate of VAT) but ebooks aren't. I had a quick look at the HMRC website (that's the taxman, for our non-UK friends reading along) and it states under 6 that there is EC law from 1991 that zero-rating can't be extended any further than it already is. So ebooks can never be zero-rated.

Parametric · Nov 27, 2014

OK, I had a look through the explanatory notes for this new legislation. Here's an interesting definition of "electronic services" (p13):

... shall include services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human
intervention...

What the hell does that mean? It obviously covers an automated shopping cart system where the buyer clicks to pay and receives the ebook automatically. If you manually email the buyer an ebook once payment is received, is that still "essentially automated"? What would you have to tweak to get around these laws - could you slightly personalise each ebook, eg. by autographing to the buyer, before sending it? Surely that's "human intervention"?

(I'm assuming that my editing work is not an "electronic service" by this definition simply because edits are sent and payment is received over the internet. Phew.)

Parametric · Nov 27, 2014

And here's another tidbit from HMRC (under 1.2):

Where digital services are supplied B2C, it is the supplier of those services who is liable to pay the VAT to the tax authorities...

If you supply digital services to consumers through an online portal, gateway or marketplace [...] [w]here the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent.

So if you use an online portal to handle this, depending on the circumstances, it may be that you're off the hook and the portal is on the hook.

shaldna · Nov 27, 2014

girlyswot said:
This doesn't apply if you only sell through retailer sites (Amazon, Smashwords, B&N etc.).

But if you are selling any digital content or services (ebooks, ebook covers etc.) then you need to be aware of the new EU VAT (sales tax) rules which will apply from Jan 1st. These rules have implications for digital sellers anywhere in the world.

1. If you make a sale to someone in the EU, you are liable for VAT. Every one of the 28 countries has its own VAT rules and you will need to be compliant.

2. If you don't make any sales to EU buyers, you may still be asked to prove that this is the case.

3. The easiest way to be compliant with (1) is to register for a Mini One Stop Shop (MOSS) which will collect VAT and remit it to the relevant countries.

4. There is no threshold level for VAT on digital sales. You are liable as soon as you have sold anything.

5. This means that, if you are in the EU and you register for a MOSS, you will almost certainly have to register your whole business for VAT. Which means you will be liable for VAT on everything you sell and will be subject to a whole lot of extra red tape and accounting.

In short, the advice seems to be that if you sell ebooks directly from your own site, stop doing so from Jan 1st. Or at least, make sure you don't sell any to people in the EU and make sure you have records to prove it.

Ironically, the laws are supposed to be cracking down on Amazon and similar companies who evade tax by basing themselves in Luxembourg and other countries with low sales tax. The effect is likely to be that small online retailers will be forced out of business.

I am not an expert. More information all over the place but see here for a good summary of the issues: http://onemanbandaccounting.co.uk/eu-vat-changes-2015/

Note: none of this affects the sales of physical goods. You can still sell paper books from your website without any problems.

Okay, to make things a little more simple for folks - bear in mind that aside from publishing I also run my own business so dealwith VAT on a regular basis - as a writer you are technically self published and should be registed as such with HMRC. Further to that, if you self pubish and sell direct then you will need to register for a VAT number - again, this is done direct with HMRC.

Every three months HMRC will send you a VAT return to complete. You fill in all sales made to other countries - ie. export and return it. HMRC will then calculate how much you owe.

To date, if you have not had any exports (or imports) you havenot been required to complete the return and HMRC has previously taken it as a nil return.

Coincidently I got my returna couple of weeks ago - bear in mind that the current forms only have space for about a dozen responses, so you will probably need to require additional copies from HMRC.

www.hmrc.gov.uk

girlyswot · Nov 27, 2014

shaldna said:
Okay, to make things a little more simple for folks - bear in mind that aside from publishing I also run my own business so dealwith VAT on a regular basis - as a writer you are technically self published and should be registed as such with HMRC. Further to that, if you self pubish and sell direct then you will need to register for a VAT number - again, this is done direct with HMRC.

Every three months HMRC will send you a VAT return to complete. You fill in all sales made to other countries - ie. export and return it. HMRC will then calculate how much you owe.

To date, if you have not had any exports (or imports) you havenot been required to complete the return and HMRC has previously taken it as a nil return.

Coincidently I got my returna couple of weeks ago - bear in mind that the current forms only have space for about a dozen responses, so you will probably need to require additional copies from HMRC.

www.hmrc.gov.uk

Currently you don't have to be VAT registered until you meet the income threshold. And even after Jan 1st, you won't have to be if you are only selling physical books directly (e.g. at shows). The new rules are only about selling digitally within the EU. If you can set things up so you're only making sales to your home country (and any non-EU countries), you still won't have to be VAT registered unless you meet the income threshold.

But the new rules are complicated and crucially, apply to sellers from anywhere in the world, if they make any sales to people in the EU, none of whom are likely to have been VAT registered in an EU country prior to this.

Arpeggio · Nov 27, 2014

Thanks for the info. I sell direct on my website, will see if I can halt all sales to EU via my digital sales facilitator. Might be able to do this through PayPal.

Old Hack · Nov 27, 2014

Before you halt your sales, speak to your accountant or tax adviser. It does look like you should be ok, based on what Shaldna reported upthread: but it's important to be prepared, so that you can know what you're facing.

Arpeggio · Nov 28, 2014

Old Hack said:
Before you halt your sales, speak to your accountant or tax adviser. It does look like you should be ok, based on what Shaldna reported upthread: but it's important to be prepared, so that you can know what you're facing.

Good point. I also did some research since last night. According to the following:

http://www.ft.com/cms/s/0/2d77e358-74c4-11e4-a418-00144feabdc0.html#axzz3KMCaS9JQ

The Treasury said: “The vast majority of microbusinesses are unlikely to be affected by the changes – because they trade through a third party platform or marketplace and where this happens it will be the responsibility of the marketplace operator to account for the VAT.” I use eJunkie which might class as a 3rd party platform? I looked on their forum and it looks like eJunkie are behind on this law too!

As has probably already been mentioned, this law is supposed to deal with companies like Amazon selling from Luxembourg, by taking VAT at the country of the customer. Maybe Amazon will just move to Switzerland, or anywhere that is not in the EU? This law seems last minute, and not many people were told, a bit like TTIP (if you've heard of that).

slhuang · Nov 28, 2014

Huh. I was going to start using a service like Payhip to sell direct. I wonder if they would count as a third-party platform -- they do take a small slice of each sale to facilitate it.

Worth investigating . . .

girlyswot · Nov 28, 2014

Arpeggio said:
Good point. I also did some research since last night. According to the following:

http://www.ft.com/cms/s/0/2d77e358-74c4-11e4-a418-00144feabdc0.html#axzz3KMCaS9JQ

The Treasury said: “The vast majority of microbusinesses are unlikely to be affected by the changes – because they trade through a third party platform or marketplace and where this happens it will be the responsibility of the marketplace operator to account for the VAT.” I use eJunkie which might class as a 3rd party platform? I looked on their forum and it looks like eJunkie are behind on this law too!

As has probably already been mentioned, this law is supposed to deal with companies like Amazon selling from Luxembourg, by taking VAT at the country of the customer. Maybe Amazon will just move to Switzerland, or anywhere that is not in the EU? This law seems last minute, and not many people were told, a bit like TTIP (if you've heard of that).

The point is that VAT will now be charged according to the location of the buyer not the seller, so it won't matter where Amazon is located. This law applies to anyone selling to EU customers no matter where the seller is based. That's one reason why it's not quite as straightforward as Shaldna's post suggests, since non-EU businesses are unlikely to be registered for VAT in an EU country, let alone all 28 of them.

The question of what constitutes a 3rd party platform is unclear. As far as I can tell, a payment service like Paypal doesn't count. I don't know enough about eJunkie to hazard a guess as to whether they count. Ravelry, the big knitting/crochet site, has taken steps to ensure that they no longer handle any EU sales (you can still use Ravelry to sell patterns, but EU sales will be directed through a UK company which is set up to deal with the new VAT issues).

It's a total mess and no one at HMRC or its equivalents in other EU countries seems to have anticipated how this law would affect microbusinesses at all.

ULTRAGOTHA · Nov 29, 2014

There is a hashtag on twitter (#VATMOSS) with discussion and links.

NinjaFingers · Nov 29, 2014

It only affects ebooks because VAT is not charged on physical books.

The UK at least has been trying to change this, but legally for VAT ebooks are classed as "software."

RedWombat · Nov 29, 2014

Apparently there is a requirement about records being kept on an EU-based server, I am reading? If so, that is where is begins and ends for me. No can do.

Paypal has stated that they can provide some but not all of the data required, so unless there's an actual microbusiness exemption, I suspect the EU direct market is going to be more trouble than it's worth.

NinjaFingers · Nov 29, 2014

I've done quite a lot of research:

1. It's actually impossible to comply with this law unless you're big enough to do your own payment processing, as it requires that you store personal data payment processors are legally forbidden from supplying! (Amazon and Google are pretty much the only companies that can actually do it).
2. It's highly unlikely that they will be able to enforce this law against non-EU citizens who have no presence in the EU. (They're talking unlimited fines, but...you can decide whether to take the risk or not - if you do be aware you could be arrested if you set foot in the EU. This has, however, actually been true since 2003 - and have you heard of anyone being arrested for it).
3. You can get around the law by having people order the books and then send them the file manually. If your direct sales volume is low, then this is probably the best option...time consuming, but much less so than trying to comply with the law.
4. There do seem to be a handful of payment processors who will handle the VAT mess for you. Switching to one of them might be a good idea if you have a higher volume of direct sales. (And if you're really rich then obviously you can hire an accountant to do the compliance crap FOR you

).

The reason this is a mess is that it's causing small businesses inside the EU to have to shut up shop because they have no protection against those promised fines and simply can't comply with the law. Also, the VATMOSS sites that are supposed to help people comply...the one in the UK was designed on the assumption they'd get 30,000 subscribers. The real number of people who are affected by this is closer to half a million.

Healthcare.gov, anyone?

RedWombat · Nov 29, 2014

NinjaFingers said:
3. You can get around the law by having people order the books and then send them the file manually. If your direct sales volume is low, then this is probably the best option...time consuming, but much less so than trying to comply with the law.

Unfortunately this may or may not be true--there's been two conflicting reports from official sources on it. Apparently they don't want to do this for fear hotels will take bookings via email and not pay VAT or something ridiculous like that. So I wouldn't count on this yet--the left hand apparently does not know what tax advice the right hand is giving at the agency.

shaldna · Nov 30, 2014

girlyswot said:
Currently you don't have to be VAT registered until you meet the income threshold. And even after Jan 1st, you won't have to be if you are only selling physical books directly (e.g. at shows). The new rules are only about selling digitally within the EU. If you can set things up so you're only making sales to your home country (and any non-EU countries), you still won't have to be VAT registered unless you meet the income threshold.

But the new rules are complicated and crucially, apply to sellers from anywhere in the world, if they make any sales to people in the EU, none of whom are likely to have been VAT registered in an EU country prior to this.

I should point out that having finally left government (yay!) I'm not self employed (not countring writing) and so I am, unfortunately, in that bracket where I have to account for everything.

TheaFair · Dec 1, 2014

KDP and VAT

I'm currently puzzling my way through the email Amazon sent out regarding the VAT changes for some countries and am trying to wrap my head around it still. It sounds like we now have to add VAT onto the price of all books uploaded for each country. Calculating their tax percentage separately in order to maintain the same royalty as before. Wouldn't it be easier to add the VAT on at the end of the transaction since it is a tax, or am I being wishful here? There's also some price changes for 35% books in certain countries that is going to make me cry when I have to figure out what to price for my $0.99 shorts. Anyone else getting a different read on this? Or understanding it better than me?

Polenth · Dec 1, 2014

It's not you. They always used to just add the VAT to the price we set, so I don't see why they won't keep doing that. This change seems to be designed to make it really hard for authors to figure out pricing, so who knows what they were thinking.

Old Hack · Dec 1, 2014

I think the best option would be for you to take appropriate professional advice. Relying on the advice of a group of unqualified people on the internet isn't the best way to proceed.

Warning for those who sell ebooks directly (VAT)

girlyswot

Old Hack

Such a nasty woman

Twick

RedWombat

Runs With Scissors

slhuang

Inappropriately math-oriented.

girlyswot

Parametric

Parametric

Parametric

shaldna

The cake is a lie. But still cake.

girlyswot

Arpeggio

Old Hack

Such a nasty woman

Arpeggio

slhuang

Inappropriately math-oriented.

girlyswot

ULTRAGOTHA

Merovingian Superhero

NinjaFingers

RedWombat

Runs With Scissors

NinjaFingers

RedWombat

Runs With Scissors

shaldna

The cake is a lie. But still cake.

TheaFair

Mousy

Polenth

Mushroom

Old Hack

Such a nasty woman