If you sell digital goods to customers based in the EU using the Easy Digital Downloads plugin, you’ll need a way to collect, process, and store EU VAT – regardless of whether your company is based in the EU or not. The easiest way to do this is by using the Easy Digital Downloads EU VAT plugin.
It automatically charges customers the correct VAT, removes VAT for registered EU businesses, and keeps a record of the customer’s IP address to help you comply with EU VAT rules and regulations.
In this article, we’ll walk you through a step-by-step tutorial to show you how you can ensure your Easy Digital Downloads store is compliant with EU tax laws. But first, let’s take a quick look at what the EU VAT law is and who is required to comply with it.
What You Need to Know About the EU VAT Law
EU VAT (aka European Union value added tax, or IVA in some countries) is a tax that’s added to products and services that are sold in EU member states. It’s charged to the end customer when they make a purchase. The seller is required to collect the tax and pay it to the correct tax authorities.
Before January 1st 2015, the law stated that if a business sells digital products to a customer residing in an EU member state then the place of supply was the country the seller was based in and not the end customer.
However, the law was last updated on January 1st, 2015 and now states that if a business sells digital products to a customer residing in an EU member state then the place of supply is where the consumer is based and not the seller.
As a result of the updated legislation, companies selling digital products to customers based in the EU must collect and handle the VAT at the customer’s local rate.
Here’s a quick example:
If your company is based in the United States of America and sells digital goods to a customer in France, you’ll have to charge French VAT to that customer and pay it to the tax authorities in France.
Are You Required to Comply With EU VAT Law?
If your Easy Digital Downloads store sells to customers based in the EU member states, you must charge them EU VAT given that your combined annual revenue from all EU countries is more than €10,000.
The only condition for not charging VAT to EU consumers is when you have collected evidence that they are a registered company. Practically speaking, what this means is that you need to be able to check to see if the customer is actually a registered business and decide whether or not to charge VAT accordingly. The time to do this is at the checkout page once the customer provides their billing address.
Now that you know what the EU VAT law is and who’s required to comply with it, let’s take a closer look at the Easy Digital Downloads EU VAT plugin and how it helps you stay on top of things.