Here’s something a lot of smaller eCommerce businesses don’t realize:
If you use Easy Digital Downloads to sell digital products to consumers in the European Union (EU), you need to register with the EU and collect the EU VAT…even if your business isn’t located in the EU.
Starting in 2015, the EU changed its tax law so that all businesses selling digital products to consumers in the EU must collect VAT for the local country of the consumer.
For example, if you have an Easy Digital Downloads store based in the USA and you sell to a consumer in Germany, you still need to charge German VAT. If you sell to the Netherlands, you need to charge Netherlands VAT.
With 28 member states in the EU, each with a different VAT rate, this can obviously get a little complicated for your Easy Digital Downloads store if you want to stay on the right side of the law.
To help, we’re going to explain how EU VAT works for Easy Digital Downloads stores. Then, we’ll show you how to easily collect the correct VAT for each EU member state using the Easy Digital Downloads EU VAT plugin. You’ll also be able to store this information to comply with EU VAT reporting requirements and offer VAT-compliant receipts to your customers in the EU.
When are you required to collect EU VAT?
You must comply with EU VAT law if your Easy Digital Downloads store meets the following three criteria:
Your store sells digital products.
You accept sales from countries in the EU.
Your combined annual revenue from all EU countries is more than €10,000.
One criterion that notably isn’t on that list is the location of your business. Since 2015, the location of your store does not affect whether or not you need to collect EU VAT. Instead, it depends on the location of your buyers.
So whether your store is in the USA, Canada, Japan, Vietnam, or anywhere else, you need to collect EU VAT if you’re selling digital products to consumers in the EU and you exceed €10,000 in annual sales from EU countries.
What is the EU VAT rate?
The actual VAT rate that you collect depends on the local country of each consumer. This is part of what makes complying so complicated – there’s no single EU VAT rate.
If you sell to a consumer in Germany, you’ll need to collect Germany’s 19% VAT. But if you sell to a consumer in the Netherlands, you need to collect the Netherlands 21% VAT. The same goes for all 26 other member states.
You do not need to collect VAT for B2B sales
If you noticed above, we keep saying “consumer”. That’s important because you only need to collect VAT for business-to-consumer sales (B2C).
You do not need to collect VAT for business-to-business sales (B2B). This is called a “reverse charge.”
However, even though you don’t need to collect money, you do still need to validate each business’s VAT number and store it in your records.
How to comply with EU VAT law
If your company needs to collect EU VAT, here are your obligations to comply with the law:
Register for a VAT number – you can register in any one of the 28 member states.
Collect EU VAT – for B2C sales, you’ll need to charge the local rate in the consumer’s country. For B2B sales, you can “collect” a 0-rate, but you’ll need to validate a business customer’s VAT number.
Offer valid VAT receipts to customers – these receipts include, in part, your business’ name and VAT number, as well as the VAT rate and total VAT charged.
Store evidence of customers’ locations for 10 years – you need to store 2 pieces of evidence for your customers’ locations (or 1 piece if your total EU sales are under €100,000/year). Typically, the easiest pieces of evidence to store are customers’ billing and IP addresses.
Submit quarterly tax returns – you need to share how much VAT you’ve collected and pay the correct amount.
Obviously, this isn’t something you want to do manually, especially if you’re running a small business.
So for the rest of this post, we’re going to focus on how to make collecting EU VAT on Easy Digital Downloads as simple and pain-free as possible.
How to accurately charge EU VAT on Easy Digital Downloads
While Easy Digital Downloads includes built-in tools to help you charge different tax rates based on a customer’s location, it doesn’t come with built-in tools to help you collect VAT numbers and accurately store evidence of shopper’s physical locations for 10 years, which are important parts of complying with the EU VAT law.
To add full EU VAT compliance to Easy Digital Downloads, you can use the Easy Digital Downloads EU VAT plugin. The plugin will help you:
Automatically charge the correct VAT rate based on a user’s location.
Validate the VAT number for B2B customers against the official VIES VAT register and charge them a 0-rate VAT if they have a valid VAT number.
Collect and store customer location evidence to comply with the requirement to store location evidence for 10 years.
Provide valid VAT receipts to customers in a few different formats.
Export your VAT reporting data to easily file your quarterly VAT returns.
On the checkout page, the plugin will automatically add the relevant tax based on a consumer’s country:
If a purchaser enters a valid VAT number for B2B sales, the plugin will automatically charge a 0-rate VAT:
When a shopper completes their purchase, the plugin adds new information to the confirmation page to turn it into a valid tax receipt:
The plugin also integrates with the official PDF Invoices extension for EDD to offer this receipt in PDF form, and shoppers will also see VAT details in their order confirmation emails:
You can also modify how this information appears using merge tags.
Finally, the plugin adds a new VAT Details meta box to each payment at your store that includes proof of physical location for purchasers and other VAT details, like whether VAT was charged and if the customer had a valid VAT number.
Again, you need to store this information for at least 10 years to comply with EU VAT law. As long as you continue to use Easy Digital Downloads, it will store this information indefinitely.
How to add EU VAT compliance to Easy Digital Downloads
Below, you’ll learn how to register for your VAT number and use the plugin to add EU VAT compliance to Easy Digital Downloads…
1. Register for your EU VAT number
Before you can start collecting EU VAT at your store, you need to register for your EU VAT number.
You can either register in every country where you make sales (complicated!). Or, you can register for a Mini-One-Stop-Shop (MOSS) in a single country (much simpler!). For an Easy Digital Downloads store, you’re almost always better off using the MOSS approach.
If your business is located in the EU, you should register for MOSS in your local tax authority (this is called the Union Scheme).
If your business is located outside the EU, you can register for MOSS with the tax authority in any EU member state (this is called the Non-Union Scheme).
While you can choose any of the EU’s 28 member states, we recommend registering with the Republic of Ireland because it has a good online system and uses native English.
Of course, if English isn’t your native language, you might prefer a different country. For example, if you speak Spanish, you could opt to register using the Spanish MOSS system.
2. Install and configure the Easy Digital Downloads EU VAT plugin
Once you have your VAT number, you’re ready to configure Easy Digital Downloads to start…
Charging the correct VAT rate to consumers.
Validating VAT numbers for B2B sales and correctly charging a 0-rate.
Offering EU-compliant VAT receipts.
Storing important physical location and tax information to help you file your quarterly returns.
To get started, install and activate the Easy Digital Downloads EU VAT plugin. As soon as you activate the plugin, it automatically:
Charges the correct VAT for each country in the EU.
Adds a VAT number field to the checkout form where B2B customers can enter their VAT numbers. The plugin will actually validate this number against the official VIES central database of EU VAT numbers.
Adds EU VAT information to the confirmation and payment details pages to offer an EU-compliant tax invoice.
Adds new backend details to help you track and export VAT information.
Basically, most of the core functions just start working as soon as you activate the plugin, without requiring any manual input.
There are a few things you’ll want to configure, though…
To offer EU-compliant receipts, you’ll need to add your own VAT number and business information.
To add this information, go to Downloads → Settings → Extensions and enter your Company Information, including your own VAT number that you obtained in the previous step:
If your business is located in the EU, you can also check the Reverse Charge VAT in Home Country if applicable.
To add VAT details to your purchase receipt emails, you can go to Downloads → Settings → Emails → Purchase Receipts.
There, you’ll see new merge tags that you can use in your email templates, along with all the default Easy Digital Downloads merge tags:
Note that the {vat} merge tag will automatically fall back to {tax} for non-EU purchases, so you can essentially use it to replace the {tag} merge tag in your email templates.
3. Submit quarterly VAT return
To stay compliant, you need to submit your MOSS VAT return every quarter. As long as you used the MOSS system, you can submit a single return for the entire EU, rather than filing with each member state.
You’ll submit your return through the MOSS system where you registered your business in Step #1. For example, through the Irish MOSS system.
To generate the information that you need for your return, you have a few different options (detailed here).
The easiest solution is to use the plugin’s built-in EU VAT Report, which you can access by going to Downloads → Reports → Export:
This report perfectly matches up with the information that you need to submit in your MOSS VAT return.
Depending on how you’ve set up your store’s currency and accounting practices, you might prefer a different method, though.
And that’s it. You’re officially compliant…at least until the next quarter rolls around!
Start collecting EU VAT with Easy Digital Downloads
Dealing with taxes is never fun, but it is necessary if you want to stay compliant with the law.
Given the size of the EU, it’s almost a guarantee that your store will have customers in one of the EU member states. And if you’re selling digital products to those people, you need to collect EU VAT if your EU sales exceed €10,000 per year.
While the requirement to collect VAT and VAT information for 28 different countries and all your EU customers sounds complicated, the Easy Digital Downloads EU VAT plugin makes it about as simple as just activating a plugin.
Do you have any additional questions about how to start collecting EU VAT on Easy Digital Downloads? Please let us know in the comments section below.
Illustration by Jessica Johnston