The EU has instigated new sales tax rules which force people selling in the EU to charge the sales tax of the country where the buyer is located. This is a rule designed to fight tax evasion by large companies. It does however change the way I have been pricing the PDF of Mastering #ArchiMate.Until the end of 2014, I used a world-wide flat price of €29.99 for the PDF. In the background, that meant I was effectively charging €24.78 in the EU, as the Dutch sales tax rate on e-Books is 21%. The rest of sales in the EU, I have to pass on to the Dutch state.
Starting Jan 1, 2015, I have to charge in the EU for every sale the sales tax rate of the country where the buyer is located. For two EU countries, this means a low sales tax: Luxemburg: 3% and France 5.5%. But for the rest the sales tax rates are high, with Hungary charging 27%. The systems of DPD do not support ‘inclusive’ pricing, so instead of setting a flat price (including tax, if any) across the world, I can only set a pre-tax price, and DPD will add the sales tax based on the location of the buyer.
As a result, I have to adopt a new pre-tax price for the PDF book. After some calculations (56% of my sales in 2014 were to EU countries), I have decided on a new PDF pre-tax price of €26.99. If you’re outside the EU, that is the price as I do not have to charge sales tax to buyers from outside the EU. Inside the EU, the end price depends on your location. If you’re in Hungary, the 27% sales tax will push the end user price from €29.99 (now) to over €34. If you’re in Luxemburg, the end price will drop from €29.99 to €27.80. Most EU countries still use a high rate for e-Books (between 18% and 27%), the exceptions are Luxemburg and France. There is discussion in the EU and in many countries to lower the rate for e-Books to the one for physical books, but those discussions haven’t born any fruit yet.
I understand the reason for this change. Large companies are gaming the EU tax rules to make sure they hardly pay any tax at all. This is unfair. But the result is that small companies have to cater to 28 different tax regimes. They’ve made it easier for small EU companies, they can use a one-stop-shop (their own tax services) for paying the sales tax, if their tax amounts stay below a certain threshold. It still is quite an administrative burden, certainly for a very small operation run ‘on the side’, as mine is.
What the EU has also done to fight tax evasion is to make this rule apply to foreign companies. So, that artist in Canada selling nice things world wide via the internet has to ask the Hungarian tax services for a tax ID and for the 3-4 sales every year in that country has to charge that 27% sales tax and hand the money over. No wonder that many small shops that operate from outside the EU are not installing rules that they won’t sell to (most) EU countries anymore. There is officially an option to set up a one-stop-shop in one of the EU countries, but I have no idea how hard that is for foreigners. Probably hard.