If you’re in the EU, you may have heard about the new VAT (sales tax) rules that’ll come into place on January 1st 2015. These rules also affect sound effect sales, both for SFX creators and consumers.
Here’s my take on them, and what it means for you as an independent SFX creator, as a consumer, and for someone selling through A Sound Effect.
Before proceeding, please note that I’m no tax expert and/or legal advisor. This is just my informal take on how things work after reading about the new rules, and none of this should be taken as legal advice – always check with your accountant, lawyer and other helpful figures for confirmation on any details described here. You’re of course solely responsible for any business decisions you make – based on this, or other, info :)
With that out of the way, I still hope this informal overview will be of some use to you – and feel free to chime in with your input, tips and corrections in the comments below. Good luck with the transition to the new rules.
The essence of the new rules:
The new rules – pros and cons:
Let’s have a look at the pros and cons of these new rules:
Pros:
• Even terms for selling digital goods with VAT for all businesses in the EU, as companies can’t just set up in a low-VAT country and sell their products with lower VAT.
• Even terms in regard to the VAT threshold – companies can’t just set up in a high-VAT-threshold country and avoid adding VAT to prices.
• Potentially cheaper goods for consumers, as consumers can now buy at their local VAT rates, which may be lower than where the shop is located.
Cons:
• There’s no lower VAT threshold, meaning that if you sell digital goods for even just €1 to a consumer in the EU, you’ll need to be VAT registered. This is, to put it bluntly, downright insane.
• Getting things set up and tested takes time. Thankfully, it should only be done once, and it looks like it can be handled via plugins for many businesses.
• More administration & paperwork, as there’s more reporting to do to local authorities.
• Some uncertainty about the documentation required to confirm the customer location
• When you’re selling digital goods (such as SFX) to a consumer in the EU, you’ll need to charge the VAT rate of the EU member state where the customer is, rather than where your webshop is based. Sell to just one EU consumer, and the new rules come into place.
• There’s also no longer a VAT exemption threshold when selling digital goods to other EU members – sell for €1 and you’ll need to be VAT registered.
• You’ll need to have VAT rates listed for all EU countries in your shop backend.
• In theory, you’ll have to report the VAT sales to each EU member country. In practice, you’ll want to register for VAT MOSS in your EU country (‘VAT Mini One-Stop Shop’ – it may be called something else in your country), which allows you to report all EU VAT sales to your local authorities. They’ll then send out the collected VAT to each member state’s authorities.
• You’ll need to store customer data for 10 years
• If you’re a non-EU based SFX creator selling directly to a customer in an EU member state, you’ll also need to register for VAT MOSS in one of the EU member states.
Situations where you don’t have to worry about the new rules:
You’re not affected on any sales you make through A Sound Effect (more on this further down on the page), or if you exclusively sell B2B (if you have a valid EU VAT ID and sell exclusively to other EU-customers with a valid VAT ID) and/or exclusively to non EU-customers.
Helpful tools and links for your shop:
• Making sense of the new VAT rules
• Woocommerce VAT rules overview and plugin links
• EU VAT Myths
• EU VAT display rules (short version: You have to show prices with VAT to EU consumers)
• What the new rules mean for US-based companies and here’s another good read on that
• NEW: EU VAT Assistant plugin for Woocommerce
One of the big challenges with the new rules is what VAT rates to show to consumers. How do you show German VAT rates to Germans, Italian rates to Italians etc. And how about your non-EU visitors? What will they think of all these strange VAT rates that really don’t apply to them anyway?
After all, visitors should see the correct rates in your shop, not when they reach checkout. That’s far too late in the process if you ask me.
I’ve only come across ONE solution that solves this so far. And it’ll cost you around €20.
It’s called Tax Display by Country, and uses geo-location to automatically determine where your visitors come from, so prices and VAT rates in your shop will be correct the second they enter your site. Not only on checkout, but when visitors are browsing your products too.
Once you’ve spent a little time setting it up, it then fetches the correct VAT rates for your visitors automatically – and it’s eerily accurate.
In the unlikely case the plugin misidentifies your visitor’s location, he or she can simply pick the correct country from a selector in your sidebar. The plugin then updates all prices in your catalog on-the-fly to fit with the new location. It really is a brilliant solution.
If you’re a private consumer in the EU who buys digital goods such as sound effects in the EU:
• As of January 1st 2015, you’ll no longer be charged VAT depending on where a webshop is located. Instead, you’ll be charged the VAT rate that applies to the country you live in. For some, this means higher VAT rates, for others it means lower rates.
An example:
Before January 1st, you’ll be paying the Danish VAT rate in a Danish webshop, no matter where in the EU you’re based. After January 1st, if you’re German, you’ll be paying the German VAT rate in that same Danish web store; if you’re Slovenian, you’ll be paying the Slovenian VAT rate, etc.
And for European consumers, so it goes for all EU member states, and for all EU based webshops selling digital goods.
• Also, some sites have been VAT exempt so far because their revenue was under a certain threshold. That threshold is now gone for digital goods sold in the EU, so you may see more webshops charge VAT than before January 1st 2015.
• These new rules won’t affect you if A) you have a valid EU VAT ID or B) if you’re a non-EU based customer buying from an EU-based webshop.
If you’re distributing your sounds via A Sound Effect, these new rules won’t affect any sales you make through this site. Why? Because when someone buys your SFX through A Sound Effect, you, as a SFX creator, technically only have one customer – and that’s A Sound Effect. You won’t have any business-to-consumer sales here (B2C sales is what the new rules affect).
For EU consumers buying your SFX via A Sound Effect, VAT is automatically added, collected and paid to authorities by the shop, without involving you as a SFX creator. So for SFX you sell with A Sound Effect as distributor, you don’t have to worry about the new rules – that’ll be my headache here on A Sound Effect :)
Note: This only covers sales made with A Sound Effect as distributor – if you’re selling through other sites and channels, you’ll have to check with them how the rules are handled there. Direct-to-consumer sales are also something you’ll be handling yourself, of course.
Want to distribute your sound effects via A Sound Effect and avoid the VAT hassle?
Contact me here.
Do you have tips, corrections or feedback on any of the above? Leave a comment below: