Selling digital products? How the 2015 VAT rules affect you

Written by Philipp Steinweber

Are you selling digital products? Info products, ebooks, online courses, audio books, guided meditations, …? Then 2015 has an interesting challenge for you, no matter where your business is based.

So what’s happening?

As of January 1st 2015 everyone who sells digital products to European customers will need to charge VAT based on where their customers are based.

This is different to how it worked so far. Until now the VAT is being charged at the rate where the seller (you) is based. We’re based in Germany, that’s why we have to add 19% VAT when we sell digital products to consumers (there are exceptions, e.g. if people qualify for “reverse charge”, but that’s a different story).

Adding 19% for everyone is relatively simple. It’s getting way more complicated now, because you have to know where your buyer is based before being able to telling them the final price. The EU VAT rates vary between 10% and 30% – see this table here. To make it even more complicated: Many countries have different VAT rates for different types of products. Books (and therefore ebooks) often have a lower rate than other products.

While the reason for this new rule is making companies like Amazon pay proper taxes and not “hiding” in low VAT countries like Luxemburg, it makes many small business owner gasp. If you’re making a couple of hundred or thousand bucks from digital products, the administrative effort seems hilarious.

Which products does it affect?

As already mentioned, the new rule specifically applies to digital products. This includes ebooks, video and audio downloads, online courses etc…

There are exceptions when your personal delivery is involved. A live webinar would not be affected by this new rule. A recorded version of the same would be. So from my understanding there could be a way that an online course would not qualify for that new rule, as long as you are personally delivering the classes. Live. But as 99% of the courses are based on preproduced material, the new rule would apply.

So what do we do?

There is good news. Software is able to adapt to those changes. Probably not every “selling digital products” solution will do so very fast, because it’s also a major headache for them. But companies like SendOwl, who are based in Europe and therefore have a lot of people selling to Europeans (remember: doesn’t matter where you are based!) have to adapt quickly. And in SendOwls case they already did.

SendOwl also published a major write-up upon this topic which gives you a more in-depth overview about the legal requirements, and which ways to determine buyers nationality are valid.

Further reading:

About the author

Philipp Steinweber

Philipp is the founder of Metamonks and Omooni, and passionate about personal growth. On Soulful Hustle he open-sources the strategies and insights learned from his projects.