If you sell digital goods, you may already know about the EU Value-Added Tax (VAT) laws. All merchants who sell to European customers should understand VAT laws and adjust accordingly. Luckily, there are has all the tools to bring you up to speed.
In this article:
The Value Added Tax (VAT) is a general tax in the European Union assessed on value added to goods and services.
According to EU VAT rules on digital goods, a merchant must pay VAT if a customer based in the EU purchases digital goods. Please review Key Facts About The New EU VAT Rules for more information.
You must comply with EU VAT rules if:
- You sell downloadable digital goods or services (including eBooks, hosting services, etc). Check for more information: What counts as a digital good?
- You sell to customers in EU countries regardless of where you are based.
Merchants must do the following to comply with EU VAT rules:
- identify the location of your customer;
- calculate the correct VAT rates basing on your customer’s location;
- save your customer’s location with two pieces of non-conflicting evidence such as a billing address and matching IP address (you must retain this information for 10 years);
- submit a quarterly VAT return to each applicable EU state
There are two important considerations for selling digital goods to EU customers:
1. Register for MOSS and get a VAT ID
As a merchant, you can register for the Mini One-Stop Shop, or MOSS. If your business is based in an EU country, then you may already have a VAT ID and can easily register for MOSS. If you don’t have a VAT ID and operate from outside the EU, you can choose any EU country for your Member State identification.
2. Report quarterly
Each quarter, merchants must submit a MOSS VAT return by electronic means regardless of whether they supplied e-goods. The MOSS VAT return (and accompanying payment) is required within 20 days of the end of the period covered by the return. The Guide to the VAT mini One Stop Shop describes the matter in more details.
1. Charge VAT on your products
You can set up VAT through the Control Panel. Here is a guide for Setting up EU value-added tax (VAT)
2. Collect customer location
Your store has built-in capabilities to request a customer’s country. Simply enable the billing address form at checkout to collect this information:
- Go to your store Control Panel Settings → General → Cart & Checkout;
- Enable Ask for a billing address during checkout.
3. Validate customer location by IP
Your store detects a customer’s IP address automatically – it’s saved in the order details and displayed in the Control Panel. If a customer’s IP address doesn’t match the billing address at checkout, displays a warning message on the order details page. VAT requires you to contact the customer and reconcile this discrepancy.
4. Store customer location information for 10 years
We retain information in your Control Panel indefinitely. No action is required from your side.
As a global company, we understand the challenges merchants face and aim to provide tools to comply with laws around the world.
HMRC (Her Majesty's Revenue and Customs) requires data protection if a merchant stores customer information. Because of the store platform, we fully host your store’s data and take responsibility for protecting this data. You can rest assured we take all necessary measures to protect your customer information.