Tag Archives: EU VAT law

The EU VAT Directive For Digital Products Begins Tomorrow!

Hello everyone! My sincere apologies for not updating the Digital Marketing Times blog more in 2014.  This was due to a number of circumstances, including business-related and personal/family reasons.  I intend to write much more on this blog in 2015, so please stay tuned and check in regularly, as there will be more digital marketing information you can use right here.

Before I begin, I want to wish you all a happy, healthy, and prosperous 2015!

The information I want to discuss today relates to the EU VAT directive that will take effect beginning tomorrow, January 1, 2015.  Essentially, all marketers who sell digital products are required to collect VAT based on the purchaser’s location.  This is where a myriad of problems come in, especially for those that are small- to medium-sized businesses, as a lot of expensive administrative costs and extra paperwork is required to be in compliance.

A good summary of all of those issues can be found here:

Disclaimer: I am not a lawyer; thus, the information I present here is NOT to be taken as legal advice.  Thus, I am NOT responsible for any information presented here that you choose to use in your business.  Please consult a qualified attorney and/or accountant for legal advice regarding the EU VAT and your particular situation.

I’ve learned from a reliable source (who lives in the EU) that each EU member state must create a national law, pass it in their respective Parliaments, then apply those laws in their respective countries in order to make the EU VAT executable.  As you can imagine, that will take time.

Now, the question remains whether those national laws, once they are passed, can retroactively apply the EU VAT directive back to January 1, 2015, the first day the EU VAT directive is to take effect.  That is anyone’s guess, but for the EU countries to actively enforce that directive, they must pass their own national laws first.  That has not happened yet, and it will be a period of time before they do.

Suffice it to say, though, if you do sell digital products, you need to be aware of this law and take steps to be in compliance for if/when the respective EU countries pass their national laws to enact the EU VAT directive, especially if those laws do retroactively enforce that directive from January 1, 2015. (In other words, you need to be preparing for this NOW if you haven’t already).

Thus, what can you do if you sell digital products from your website(s)?

Well, if you don’t utilize a third-party processor like ClickBank (and I’ve heard that JVZoo and Zaxaa are working on complying as well) to take care of the VAT (and there are problems with this approach as well, which you can read more about at the link above), you’d have to register your business in each EU member state to which you sell, as each EU member state has different VAT rates (there are reportedly around 75 different rates!).

Plus, “digitally-delivered service” is defined differently in different EU countries; some countries will see sales of ebooks and digitally-delivered programs as being subject to VAT, while other countries will only see the sales of ebooks as being subject to VAT.  Thus, it is virtually impossible to satisfy the requirement due to the fact that digital marketers don’t usually get the required data needed to determine the purchaser’s place of origin until AFTER he/she has clicked the “Buy Now” button.

Thus, unless a third-party processor or a website plug-in can calculate the appropriate VAT after the purchaser has input his/her info, it’s virtually impossible for a digital marketer to apply the correct VAT for each purchase.  And, as I said, there are around 75 different VAT rates that can apply, depending upon the specific country and purchase.

Thus, you can see some of the issues that this EU VAT directive is causing for digital marketers, which is why many are calling it the “VATMESS,” even creating the hashtag #VATMESS on Twitter.

In my opinion, (again, not to be taken as legal advice), the best course of action would be the following:

1. Stay tuned to this developing issue- check back here regularly, as I’ll keep tabs on this issue.  The link above is also a good blog to check out.

2. Contact your attorney and/or accountant to learn how you can be in compliance with the EU VAT directive.  Do this NOW rather than later; even though there are no national laws in place (to my knowledge) to enforce the EU VAT directive, it’s possible they could retroactively apply the respective national law back to January 1, 2015 if/when the national laws are created and enacted.

3. Do NOT go the route that some digital marketers are considering: Not selling to EU members.  While this may seem like a reasonable alternative to avoid the legal issues and administrative headaches and paperwork that will accompany selling digital products to EU members, you would be in violation of discrimination laws for willfully not selling to EU members, creating a different type of (and equally large) legal issue for your business.

Essentially, you cannot just ignore this and hope it goes away.  While, as the link above indicates, EU government officials are beginning to realize the strain and cost the new EU VAT directive will put on digital businesses, especially those that are smaller- and medium-sized, the directive is likely NOT going away.  Instead, there will probably be some modifications that will be made to help make it easier for these businesses to be in compliance, but the businesses will still have to obtain the VAT, whether it’s through their own efforts and/or through a third-party processor.

In fact, the directive could potentially apply to physical products beginning in 2016 (as stated at the link above), which makes it even more vital that your business (especially if it also sells physical products in addition to digital products) stays informed and gets into compliance with VAT now.

As they say, “knowledge is power.” Stay in the know and stay tuned to this blog and to the link above for further details on the EU VAT directive – only by staying updated and taking action can ensure your business is in compliance with the new directive and can be profitable in 2015 and beyond.