If you are currently selling or planning to sell digital products such as e-books online to customers within Europe, you will be painfully aware of the new EU VAT regulations. The new requirements have created complications in particular for small businesses that now find themselves either having to close down part or all of their operations or having to implement some kind of sub-optimal solution.
Having failed to find a ready-made solution online, we want to share our experience of addressing these new requirements in the hope that this can help other businesses to continue operating in a way that complies with the new EU regulations while also providing a smooth customer experience.
Note: The solution applies specifically to sites using WordPress and WooCommerce to sell their products.
So what are the new EU regulations?
In essence, the new EU regulations that came into force on 1st January 2015 mean that businesses now have to charge VAT in the country in which the digital product is purchased, under the “place of supply” rule. There are no minimum thresholds (previously only businesses that made a certain turnover had to register for and charge VAT in the UK), so every business needs to comply, however small their earnings within the EU.
The requirements for a business selling digital products are now as follows:
- Charge the correct VAT rates based on the customer’s location (actually, their permanent address)
- Validate the customer’s location, ensuring that there are two pieces of non-conflicting evidence
- Report your VAT to each individual EU state
VAT reporting: the MOSS scheme
One option, if your sales are negligible in certain EU countries, is to block customers in those countries from buying your product.
In terms of the reporting itself, however, there is a solution that allows you still to sell to all countries without the added complexity of the paperwork. This is to register for the Mini One Stop Shop (MOSS), a scheme that allows you to only report your VAT to one country – in our case, HMRC in the UK – who will then handle the reporting to the other EU states on your behalf.
MOSS requires you to keep all records for ten years but it is still a huge simplification versus having to register for VAT in each and every EU country.
Charging the correct VAT and validating the customer’s location
Of course, the MOSS scheme only handles the reporting part of the new requirements. Before that step, you first need to be able to charge the correct VAT rates and you must do so by identifying and validating the customer’s location.
When it comes to plug-in solutions for sites using WordPress, we found a number of options online:
- WooCommerce EU VAT assistant (free)
- WooCommerce EU VAT compliance (free but there is a paid version with additional features and support)
- WooCommerce Taxamo (free plug-in but with a charge per transaction)
These plug-ins each claim compliance with the new EU regulations, identifying and validating the customer’s location, charging the correct VAT, and enabling reporting.
A smooth customer experience
While complying with the new EU regulations, the proposed solutions above create a discrepancy, both between the price on the initial product page and the price when you finally check out, and between the gross price in each country. This is both incredibly messy and misleading to the customer.
We wanted a simple and transparent customer experience. That meant the same price appearing from the product page right through to final checkout, and also the same price in each country (we had decided to absorb the tax to allow for a standard global product price, both EU and non-EU). For this, we turned to a plug-in solution that would keep a fixed gross price:
This plug-in, however, only worked within the EU – so the price ended up being different for non-EU countries – while it also didn’t do anything about the rest of the EU regulations i.e. the double confirmation of the customer’s location and the reporting requirements.
The perfect solution
To get full EU compliance as well as standard product pricing for our customers globally, from product page through to checkout, we finally settled on the following solution:
The free EU VAT assistant handles the compliance with the new regulations: it identifies and validates the customer’s location, accepts and validates EU VAT numbers (if you have VAT-registered businesses buying your products), and enables easy VAT reporting.
The paid Tax Display plug-in (currently priced at $21) gives us the front-end behavior that we’re looking for, keeping a constant price globally and from product page through to checkout.
You can see how this final solution looks on the website here: Wolf Leaders Academy.
Disclaimer: We are neither legal nor technical experts and can in no way advise you officially on these matters. Our explanations above are based on substantial research and correct to the best of our knowledge and understanding, and the solution is one that we believe has worked well for us.