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The VATmess is About to Get Messier for Indie Authors and Publishers (If That’s Even Possible)

2592570286_0fedc257e3_oWhen the EU tax laws changed earlier this year (aka the #VATmess) and forced sellers to collect VAT based on where their EU customers were located, it caused an incredible mess.

Many, including even ecommerce platforms, were unprepared for the headaches and the extra paperwork required to file 28 sets of tax documents for 28 EU countries. In fact, some sellers found that they could not cope, and instead swore off direct sales to customers in the EU.

And now it looks like the problem is going to get worse. Techcrunch reports that a baker’s dozen countries, including Japan, are following in the EU’s footsteps.

It took Europe the best part of a decade to devise and implement VAT MOSS, with much internecine squabbling among the 28 member states along the way (hence the lack of agreement over a minimum threshold, which was reputedly being pushed for by the U.K. and others).

There will be no such delays for their international counterparts, as the ground has been paved by the EU; there are no international negotiations required, and countries are keen to protect their national tech champions and collect more tax revenues.

Therefore, for those who want to sell their digital services legally, this means more compliance, more returns and incremental cost (as a number of jurisdictions require you to have a local accountant file your returns and deal with any investigations).

You can find the thirteen countries at the end of this post.

Some, like Japan, Switzerland, Kenya, Singapore, Australia, and Ghana, have minimum payment thresholds so high that most authors and publishers probably won’t  have to worry about having to pay. They would have to be immensely popular in those countries before it became an issue.

But other countries on this list require that sellers collect and remit local taxes, no matter how petty the funds might be. This is the same onerous burden that the EU inflicted on sellers with VATmess, and we all know how that turned out.

The cost of doing business with customers in the countries listed below has increased (or will increase) to the point that, well, it won’t be worth the bother. Between the requirement for a local accountant, and the headaches of simply having to learn the tax laws for another dozen localities, the overhead exceeds the potential sales.

And to make matters worse, even more countries are salivating at the idea of a tax windfall. Canada, India, Indonesia, Israel, New Zealand, Turkey, Russia, and Thailand are all reportedly planning to impose similar regulations on foreign sellers.

Those new regulations will likely result in the same outcome as the VATmess. The larger platforms with either add more code to their financial systems to handles the taxes (or, as in the case of Patreon, pretend it’s not their problem) while the smaller independent sellers will decide it’s not worth the hassle.

With Amazon representing the majority of ebook sales, the new morass of tax regulations probably won’t directly affect most authors or publishers. But the extra layers of red tape will still act to discourage independent direct sales, concentrating more sales in the major platforms.

So rather than level the playing field, as the EU intended, the new rules are having the opposite (but entirely predictable) effect.

Country Tax introduced Approx threshold (USD) Local accountant required?
Switzerland a while back $100k Yes
Singapore a while back $750k Yes
Ghana a while back $35k Yes
Madagascar a while back ? Yes
Norway July 2011 $6k No
Iceland Nov 2011 $7k Yes
Kenya Sept 2013 $50k Yes
South Africa June 2014 $4k Yes
Angola Nov 2014 ? Yes
Albania Jan 2015 nil Yes
South Korea July 2015 nil Yes
Japan October 2015 $80k Yes
Australia July 2017 $50k ?

image by x_jamesmorris

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Syn October 12, 2015 um 2:18 am

Would Kindle unlimited be a loop hole for indies? Readers just borrowing instead of buying books. Just curious.

fjtorres October 12, 2015 um 7:01 am

Yes, Kindle Unlimited is (for publishers) outside the scope of these VAT laws because Amazon is the seller of record. And what Amazon is selling is access to the KU library, not the book themselves.

For actual Kindle sales, Amazon handles the VAT side of things but the publisher needs to specify the selling price for each country, which can be a pain but it is nothing like the trouble that comes from direct sales from an author webpage.

Episode 80 – Translations, More VAT, and the Ebook Market | Sell More Books Show October 14, 2015 um 12:34 pm

[…] Love is a Vattlefield […]

fxgv October 15, 2015 um 2:23 pm

So this this is about "digital service" sales, right? I’m not exactly sure, what the proposal is. What exactly is it, that requires a local accountant in some places? Clearly, foreign countries cannot force foreign merchants to collect foreign taxes, or can they? Shouldn’t this be the importer’s duty instead of the exporter’s, since the former owes the tax? Seller’s shouldn’t have to collect any taxes at all for foreign sales or get it refunded for exports, as, I believe, it is the case with physical goods.

Nate Hoffelder October 15, 2015 um 3:47 pm

Yes, they do expect people outside their borders to collect taxes for them.

I don’t get it either.

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