From 1 January 2015, the rules around the European Union VAT place of supply of services will change. The 2015 European Union VAT law requires all sales of digital items (such as ebooks) in the EU to pay VAT based on the location of the customer. Learn more here.

This is intended to close tax-loopholes for large multinational corporations such as Amazon, Google, Apple etc but will have a major implication for small-to-medium companies and individuals such as authors. In order to remove all of the administrative burden from our authors we will take care of all EU VAT issues for your readers based in the European Union.


Settings

Visit your settings page and then click on the “Advanced Settings” tab. If you scroll down and click on the EU VAT dropdown, you will see the following:

Add VAT on top of price

Choosing the “Add VAT on top of price” option means that if your ebook is priced at $10 and your customer is based in France (standard VAT rate of 20%), then the following will happen:

Your customer will be charged: $10 + (0.20 × $10) = $12

We will charge 5% and will collect the EU VAT amount: (0.05 × $10) + (0.20 × $10) = $2.50

You will receive the remaining amount which PayPal will later deduct it’s fees from: $12 – $2.50 = $9.50

Include VAT in price

Choosing the “Include VAT in price” option means that if your ebook is priced at $10 and your customer is based in France (standard VAT rate of 20%), then the following will happen:

Your customer will be charged: $10

Price before VAT applied: $10 ÷ 1.20 = $8.33

We will charge 5% and will collect the EU VAT amount: (0.05 × $8.33) + ($10 – $8.33) = $2.09

You will receive the remaining amount which PayPal will later deduct it’s fees from: $10 – $2.09 = $7.91


Buying Process

If we detect that a customer is based in the EU, once the customer clicks the “Buy Now” button they will see the following:

Although it might seem unnecessary to ask for an address to receive a digital item, unfortunately a billing address is one of the customer details we are required by the 2015 EU VAT law to obtain.

Key Note

If your customer is not based in the European Union, then we will not show them the above billing address panel or apply VAT to their transaction.