* The Business of Software

A former community discussing the business of software, from the smallest shareware operation to Microsoft. A part of Joel on Software.

We're closed, folks!

Links:

» Business of Software FAQ
» The Business of Software Conference (held every fall, usually in Boston)
» Forum guidelines (Please read before posting!)

Moderators:

Andy Brice
Successful Software

Doug Nebeker ("Doug")

Jonathan Matthews
Creator of DeepTrawl, CloudTrawl, and LeapDoc

Nicholas Hebb
BreezeTree Software

Bob Walsh
host, Startup Success Podcast author of The Web Startup Success Guide and Micro-ISV: From Vision To Reality

Patrick McKenzie
Bingo Card Creator

US reseller and EU VAT

I've been reading up on the whole issues of US resellers (like plimus in my case) charging VAT for EU customers.

In short, as I understand it, during the order process EU customers get charged an additional (+-) 20% VAT, if the goods are delivered electronically only.

Note : if the goods are physically shipped, no VAT needs to be charged because the buyer has the duty to declare it to his local customs office and pay import tax or whatever is applicable.

The threads I read in the archives were from 2005-2007 and no one really had a conclusive answer on what do to.

But apparently some resellers (I gather from those threads) do NOT charge this VAT.

Needless to say, using such a 'rogue' reseller would instantly make a product more attractive to potential EU buyers.

--> Does anyone know who these resellers are?

--> Has anyone purposely switched to such a reseller for that reason?

--> Has anyone started to ship cd's to their EU customers (in addition to the electronic download) to avoid the 'electronic delivery only' clause and put the decision/responsibility in the buyer's hands?

--> How do you handle this special VAT case on your order page? Do you mention it beforehand in big red bold letters ("my computer has 512 shades of red!") or do you let your customers find that one out by themselves later in the order process?
Yanic Inghelbrecht Send private email
Monday, August 18, 2008
 
 
--> How do you handle this special VAT case on your order page?

I decided to just eat the additional cost myself instead of irritating the buyers. As an EU resident, I get quite angry when I'm about to buy some software and I see the extra 20% I have to pay.
The orders I get from "VAT countries" are 20% of the total number of orders and the money I lose by paying the VAT is about 2% of the total sales amount. So, I don't think it's hurting me that much but it could be different for someone who is getting majority of their sales from EU.

One thing I've always wondered is whether payment processors really pay the VAT collected to the authorities or they just pocket the money. No one has access to their records and tax authorities have no way to know how much VAT was actually collected.
Plamen Vasilev Send private email
Monday, August 18, 2008
 
 
The problem with paying VAT on the physical shipment is that the shiper often adds a hefty service charge.

In the UK the tax people generally allow items under 18GBP without tax, but if the exchange rate changes and the item gets valued at 18.50 you pay VAT and a 25GBP fee to the post office.
Martin Send private email
Monday, August 18, 2008
 
 
The problem for the "physical" goods are tat they get seized at customs, and there is a lot of red tape involved to actually pay the VAT.
We are used to the VAT. What really pisses us of is trying to make the goods more expensive just because we are europeans. For years we have had to endure the 1 USD = 1 EUR, a 50% extra charge 'just because'. Don't try to geIP us, don't try the different pricing in the .de or .fr store as opposed to the .com. We're not stupid. Just give us the same price, and add the VAT.
Vee
Tuesday, August 19, 2008
 
 
As a resident of Europe who often purchases software and electronically-delivered services from the US, only Microsoft asks me for VAT. And they don't take it - they ask if I'm VAT-registered and then don't charge VAT if I say "yes" and provide a VAT registration number. In your shoes, I'd be tempted to include a VAT honesty box where people can tick the box if they are eligable to pay ;)
Alternatively, as most suppliers seem to, just ignore the issue and assume all customers are VAT exempt or will declare it to their authority if necessary.
Ron
Tuesday, August 19, 2008
 
 
--> Does anyone know who these resellers are?
Usually European based resellers (ecommerce service providers) tend to be more appealing for software vendors when it comes down to VAT. This is happening simply because being based in EU when the customer is a company with a VAT number, then the reseller doesn't charge VAT (according to EU regulations)

--> Has anyone purposely switched to such a reseller for that reason?
I work for Avangate and have a lot of clients, software vendors from all over the world, but I honestly don't think that I had more than 5 clients switching to us from the reason you mentioned.

--> How do you handle this special VAT case on your order page? Do you mention it beforehand in big red bold letters ("my computer has 512 shades of red!") or do you let your customers find that one out by themselves later in the order process?

As a software buyer I know that I need to expect some sales tax when buying online or offline, but I would highly appreciate if I was told from the very beginning that the price I see on the web site is just the net price and VAT may apply.
On the other hand, I won't recommend a big red bold text warning customers about additional taxes as this may be a strong shop stopper; we've seen situations where that happened.
I would instead have my clients use net prices so the customers knows exactly what they pay from start to finish.

I hope this helps.
Florin Craciun Send private email
Tuesday, August 19, 2008
 
 
I absolutely agree with Vee!!!!

We are used to pay the VAT, it is used for something we value, like our health care systems, welfare, pensions, public transport, etc. (-8.

I really feel offended by suppliers that think that we are stupid (and charge 1€ for 1$) and have such a disrespect for our legal and social system that they do everything to avoid charging VAT to their European customers.

Remember the administration that is involved is the cost of doing business in the EU and can be outsourced to a reseller. The price is paid by the customer who is completely used to it, so what is the problem?
Karel Thönissen Send private email
Tuesday, August 19, 2008
 
 
It is funny that European people complains that the price of goods is high. They want to pay the same amount as Americans plus VAT. How can that be possible? If I open an office in EU, I will certainly comply to all regulations and charge a premium for doing that. And EU governments are happy with high price becuase high price == high VAT.

Tuesday, August 19, 2008
 
 
Really? How much is a new VW Passat CC? I read they start at USD$27,000 which is about GBP£14,000. I bet they will retail in the UK for around twice that yet our VAT is 17.5%, not 100%.
Ron
Tuesday, August 19, 2008
 
 
> EU governments are happy with high price becuase high price == high VAT

Unfortunately, I'm not selling to EU governments and my customers generally prefer a lower price ;)

I do not have to charge VAT, since I'm selling to the US reseller. Also, Plimus has the option of entering a VAT code on their order page so my business customers don't have to pay VAT.

But I was thinking of the non-business customers, for whom the price is suddenly 20% higher.
Yanic Inghelbrecht Send private email
Tuesday, August 19, 2008
 
 
We don't care about your 'EU Office'. The only contact we are ever going to have with your firm is a download button for your product, an "enter your VISA" provider page, perhaps a self-help BB which you might monitor and if we are lucky a support email address.

And that is how we like it. We do not ask for more.
Vee
Tuesday, August 19, 2008
 
 
Hopefully this may be better understood:

boolean vat_registered() {
    return (this.annual_income >= ~£50,000 ||
        this.want_vatregistered);
}

charge_vat = buyer.in_eu &&
    seller.vat_registered && !buyer.vat_registered;

if (charge_vat) {
    if (!seller.in_eu)
        seller.payvat(buyer.country);
    else
        seller.payvat(seller.country);
}

Tuesday, August 19, 2008
 
 

This topic is archived. No further replies will be accepted.

Other recent topics Other recent topics
 
Powered by FogBugz