How to handle VAT when selling digital goods to European customers

All online sales of digital goods to European end-consumers are subject to Value Added Tax (VAT)

Important Information:

  • Failing to comply with VAT regulations can have significant consequences, including:
    • Financial penalties: Authorities estimate the owed VAT and apply multipliers, resulting in higher costs than simply paying the initial tax.
    • Information sharing: Once one EU tax authority discovers non-compliance, they may share the information with other EU countries, leading to further penalties multiplied by remaining 27 EU countries
  • Reduced VAT rates may apply to specific digital goods, for example in UK 0% for e-books while full 20% for audio books

Key Points:

  • Non-Union One-Stop Shop (Non-Union OSS): This scheme allows businesses not registered in the EU to comply with VAT on digital goods sales to EU customers. It offers quarterly reporting (versus monthly for IOSS).
  • UK VAT: Applies to digital goods sales in the UK.
    • Reporting is quarterly, regardless of the type of goods sold.

Additional Information:

  • Seek expert advice: Due to the complexities of VAT regulations, especially for non-EU businesses, we recommend consulting with EAS for guidance.
  • Automation are a must: Automations on report generation provide you with accuracy, comprehensive compliance and stress-free sales. What to look for:
        • Eventual liability is based on end of period official exchange rate instead of the time of sale exchange rate which seller collects
        • Returns are far less likely than with physical goods but do occur, automations remove them from liability
        • Post-sale discounts are more likely than returns, they should be taken into account in the VAT liability