About EU VAT
Complete Guide to EU VAT for Digital Taxes
Does your WooCommerce Store has EU based clients? If yes then, Are you charging them appropriate VAT Tax?
If you are not aware of such situation and running a WooCommerce site then you must know that your EU based customer lives in one of the 28 member states of the European Union, and you are on the line for added value for tax. You must charge VAT during the sale, collect it from the customer, and then later file and pay it to the government.
In case if you do not do this following step then you’ll have to pay it from your own pocket.
Let’s make everything clear about EU VAT.
What is EU VAT?
VAT is Value-Added Tax, a general consumption tax on a good or service. It is applied to every sale made in the EU. “Consumption tax” means that the tax is paid by the consumer, not by the business who makes the sale. That’s why you, as a business owner, need to know when to charge your customers for VAT!
As for how much to charge your VAT, this depends. There is no universal EU VAT rate for digital goods. Instead, the rates vary from 17-27% across all the countries.
What is a digital good?
Can your product be picked up, carried, and put in a box to ship somewhere? If yes, then you should actually be reading this article on distance selling in the EU. If no, keep reading!
The EU VAT rules we’re about to explain only apply to digital goods and services. They do not apply to physical products, which have their own separate rules involving cross-border customs and taxes.
So the first question to answer is: what’s considered a digital good, anyway?
A digital good is any product that’s stored, delivered, and used in an electronic format. These are products that the customer receives via email, by downloading them from the Internet, or through logging into a website.
That definition is pretty broad, but it’s supposed to be. At the rate that technology develops these days, there’s no point in using more specific or precise language, because a new, totally unforeseen product could be on the market in a matter of weeks. If it fell outside of a limited definition of “digital good,” then figuring out how to regulate and tax it would be another nightmare. So, we stick with the broad definition.
That said, the European Commission does have four criteria that will certify whether something is a digital good. Drumroll, please:
- It is not a physical, tangible good.
- It’s essentially based on IT. The offering could not exist without technology.
- It’s provided via the Internet or an electronic network.
- It’s fully automated or involves minimal human intervention.
Those four criteria are specific enough to ensure only digital products are included, but loose enough to allow for plenty of innovation.
Some common digital goods on the market today include:
- Downloadable and online games.
- E-books, images, movies, and videos, whether buying a copy off Amazon or using a service like Netflix.
- Downloadable and streaming music, whether buying an MP3 or using a service like SoundCloud or Spotify.
- Cloud-computing software and Software-as-a-Service (SaaS), such as Quaderno 😉
- Websites, site hosting services, and internet service providers.
Heads up: you might also hear digital goods referred to as “digital services,” “e-goods,” or “e-services.” All of these terms refer to the same thing.
When should you charge EU VAT?
It’s important to know when to charge VAT because… you don’t always have to charge VAT. You need to consider it with every sale, for sure, but you don’t need to collect it from the customer every time.
The question of charging and collecting EU VAT comes down to two factors:
- Where your customer is located
- Whether the transaction is B2B or B2C
How to handle EU VAT in WordPress / WooCommerce Store?
Either you can directly ask your each customer their details personally on every single order with details of the product included and find all the national rates according to the product and accordion to the destination.
You can simply use IWP EU VAT For WooCommerce Plugin, which automates all of this process for WooCommerce Stores.