Selling digital products independently on the internet can be a challenging task, especially when it comes to handling Value Added Tax (VAT) in the European Union (EU). As a European citizen paying taxes in the EU, particularly in Italy, the complexities surrounding VAT can be overwhelming. This article aims to shed light on the issue and offer a solution for creators.
When selling digital goods, such as software or online courses, above the 10,000€ threshold, it is necessary to collect the correct VAT amount based on factors like the buyer’s location and whether they are a consumer or a business. Staying up to date with these varying VAT rates across different EU countries is practically impossible. To overcome this hurdle, many creators opt to use third-party providers like Quaderno, which provide accurate VAT data.
However, the problems don’t end there. Once the VAT has been collected, it needs to be remitted to each country individually. This can become a major headache, especially when dealing with multiple sales to different countries. The administrative burden of managing VAT payments alongside regular business activities can be exhausting.
And this is just the EU. Every country in the world has its own tax regulations. Do you know which sales tax rate applies to a specific US state? How about the newly introduced tax in New Zealand (just an example)? Keeping track of all these regulations is a nightmare for creators.
Some may suggest hiring an accountant to take care of these matters, but many creators already have accountants. In countries like Italy, running a business without an accountant is nearly impossible due to the complex rules and constant changes in deadlines and regulations. Additionally, accountants don’t work for free; any additional work delegated to them means additional fees to pay.
So, how can creators effectively handle VAT while minimizing the administrative burden? The answer lies in using merchant of record services provided by companies like Paddle, Gumroad, and Fastspring, to name a few. These services handle all the VAT-related tasks on behalf of creators for a small fee. They ensure compliance with tax regulations, provide invoices to customers, process refunds, and adapt to changes in tax rules.
By utilizing a merchant of record service, creators can focus on their core activities without having to worry about the complexities of VAT. With monthly or weekly payments and a reasonable fee structure, it’s a worthwhile investment in terms of time and energy saved.
However, it’s important to note that not all payment platforms are suitable for handling VAT in the EU. Platforms like PayPal and Stripe, for example, may not be equipped to handle the intricacies of VAT. This limitation prevents creators from using popular apps like Substack, Podia, and Revue, which are widely used in the US. Thankfully, some platforms like Teachable also offer merchant of record services, making them a viable option for EU creators.
In conclusion, navigating the VAT landscape as a creator in the EU can be challenging. However, using merchant of record services offered by specialized companies provides a streamlined and simplified solution. By delegating VAT-related tasks to these services, creators can focus on their work and avoid the complexities of tax regulations.