Taxes for digital products

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If you sell digital goods, you might already know about the EU Value-Added Tax (VAT) laws. It’s important for any merchant to understand what this means and how to adjust accordingly — and Ecwid has all the tools for achieving this.

In this article:

The EU VAT rules for digital goods

The Value Added Tax, or VAT is a general tax in the European Union assessed on the value added to goods and services.

According to the EU VAT rules on digital goods, a merchant must pay VAT, if customers from EU countries purchase digital goods from their online store. The VAT rate is based on the EU country where the buyer is located regardless of from where store is. Please see this page for more information about the EU VAT changes: Key Facts About The New EU VAT Rules

If you sell digital goods to European customers, you are affected by the EU VAT rules.
Check out our instructions about complying with GDPR – one more important EU law.

How this affects store owners

Conditions

Basically, you are affected by these VAT rules if the following things are true:

  1. You sell downloadable digital goods or services including eBooks, hosting services, e-courses, recorded training videos, music or audio downloads etc. Check for more information: What counts as a digital good?
  2. You sell to customers in EU countries regardless of whether or not you sell from a EU member state.

Requirements

Here are the requirements for the merchants to comply with the new rules:

  • identify the location of your customer;
  • calculate the correct VAT rates basing on the customer location;
  • save your customer’s location with two pieces of non-conflicting evidence such as a billing address and matching IP address. You’ll need to keep the information for 10 years;
  • submit a quarterly VAT return to each EU state your customers come from, or use a MOSS (Mini-One-Stop-Shop), which reports to each EU state on your behalf.

How to comply with the VAT rules for digital goods

Here’s what you’ll need to do in order to sell digital goods to your customers in EU countries and meet the requirements:

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 your business from outside the EU, you can choose any EU country to be your Member State of identification.

UK merchants with a UK VAT ID can register for MOSS through the HMRC.

2. Report quarterly

Each quarter, a merchant is required to submit a MOSS VAT return by electronic means, whether or not they have actually supplied e-goods. The MOSS VAT return (and accompanying payment) is required to be submitted within 20 days after the end of the period covered by the return. The Guide to the VAT mini One Stop Shop describes the matter in more details. 

How to set up your Ecwid Store to work in wccordance with the VAT rules

1. Charge VAT on your products

You can set up VAT through the Ecwid Control Panel. Read about Setting up EU value-added tax (VAT) in Ecwid

2. Collect customer location

Ecwid already has a built-in capability to ask for a customer’s country. All you need to do is to enable the billing address form at checkout in your store:

  1. Go to your Ecwid Control Panel Settings → General → Cart & Checkout;
  2. Enable Ask for a billing address during checkout.
Ecwid detects a customer’s location at the moment when they open your store and shows product prices including VAT even before the customer goes to checkout.

3. Validate customer location by IP

By default Ecwid detects a customer’s IP address automatically. It is saved in the order details and displayed in the Control Panel. If a customer’s IP address doesn’t match the billing address they enter at checkout, Ecwid displays a warning message on the order details page. According to the law requirements, in this case you should contact the customer and ask them to reconcile the discrepancy between the two sources of information.

4. Store customer location information for 10 years

The information in your Ecwid Control Panel is stored for as long as you want. No action is required from your side.

As a global company, Ecwid understands the challenges the merchants face and aims at providing them with the tools to operate their stores in compliance with the laws around the world. 

Data protection required in the UK

HMRC (Her Majesty's Revenue and Customs) requires data protection to be in place if the seller stores customer information. However, since Ecwid is SaaS and your store data is fully hosted with us, we’re responsible for the data protection and we do take care of this. You can rest assured that we take all necessary measures to protect your customer information. Additionally, Ecwid is PCI-DSS Level 1 Service Provider certified, which is the gold standard for e-commerce solutions worldwide and ensures the highest level of security.

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