TODAY'S POST: I-Spy something beginning with ...VAT!
Value Added Tax (VAT) is a European Union (Europe and the UK) tax on sales. It's the tax that you probably thought didn't apply to you if you were producing e-books, and also: American / publishing with a US publisher / self-publishing from America or at least a non-EU country / in the EU but not yet making £81k from your self-publishing (I wish *g*) ... or any combination of these that used to apply.
BUT NOW IT AFFECTS YOU.
What was the 2014 situation?
Up until 31 Dec 2014, VAT was charged according to the country you lived in. So if a publisher was US-based (or in another non-EU country) they never came across it. And if an SPA lived in the US (or in another non-EU country), it didn't affect them either.
However, if an SPA (like me in the UK) or your publisher were EU-based and you were selling e-books, you'd have had to pay VAT on your sales to your country's government. BUT as there's always been a minimum threshhold for paying it, most individuals and small businesses never got called on to pay anything.
NOTE: Amazon are based in Luxembourg *dum dum DAH music*. Because that's a EU country, they've been paying tax on their sales to Luxembourg. But the rate there is only 3% on ebooks, whereas it can be anything between that and 28% elsewhere in Europe. This has a large significance when you look at the change that came into place on 01 Jan 2015...
What happened on 01 Jan 2015?
- a US publisher selling to US customers - no tax. But selling to EU customers - tax has to be recorded and paid to the VAT authorities.
- However small an SPA may be, the same rules apply.
- the seller has to establish the customer's country when they sell, make sure they're accounting for the right VAT rate, AND keep the records of how they proved where that customer is for 10 years.
What's the problem?
Well, in theory it's all meant to charge the seller a tax rate that's relevant to where their sales are, which seems more fair (see Amazon above). Also it means the tax funds will be shifted into the country that's making the sales, not just all of it going - for example! - to Luxembourg.
- there's no minimum threshhold. If you sell ONE digital book to ONE customer in the EU, you have to register for and pay VAT.
- the EU countries all have different rates of VAT, so you have to be able to add on a different rate each time you make a sale. Only the large corporations have the resources and systems to do this.
- all customers now have to be identified to one country or another, and records have to be kept of the supporting information for 10 years. This isn't as easy as you'd think, especially in the world of online, immediate sales.
- official returns have to be made to your "base" EU country on a quarterly basis, by country of sale.
Yes indeed. What are the issues that may affect YOU?
Small, EU-based publishers are withdrawing from direct sales because of the admin burden that's NOT compensated by possible increases in price.
SPAs will have to think carefully about selling to EU customers. If you sell directly - and outside of Amazon etc - you'll have to account for VAT. That means an increased admin burden, and a variable profit on your book's price, depending on the VAT rate in each customer's home country.
Authors may see a different royalty amount earned on sales to EU countries. If the seller adds on the VAT, you'll still get your royalties based on the net price. But some sellers will take the VAT off an inclusive price *before* calculating royalty. So you may get less.
Any good news?
Well, if you sell through Amazon, All Romance, and the established e-publishers - they'll sort the tax out for you. You can rest easy, little will change apart from your readers maybe having to pay more for your books.
If you personally continue to sell direct and worldwide, you'll have to account for VAT for EU customers. But no one's expected to have to account to all the EU countries individually - the VAT authorities allow you to choose one "base" country and make a single, combined return of your sales and the VAT due every quarter.
There are several focus groups campaigning right now for amendments to the legislation, including a minimum limit before sellers have to account for VAT, like there is for trade in physical goods. That would allow most SPAs and small publishers to get back in the game.
Like I said, it's a hot topic at the moment and has barely had time to bed down in people's minds. There are plenty of places to find out more if you want or need, including but not restricted to, http://euvataction.org/, https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers, and your local tax advisor. It's not just ebooks that are affected, but all sales of digital products that are delivered at the "click of a button".
Will keep you posted....:)
Clare London, Author
Writing...Man to Man
Quids & Quills. Pop on over there if she can help with any of your VAT, other taxation and accounting issues :).
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