As of 1st January 2015, changes in the European Union (EU) VAT rules require businesses selling digital services or products to charge VAT at the point of consumption for all ‘Business to Consumer’ (B2C) transactions.
This means that if you have the facility to sell 'Downloadable Products' on your account and are actively selling digital products then you must be compliant with this legislation.
To help you with this, Create offer a FREE feature within your account to calculate the customer’s VAT rate based upon their resident state for all digital products (downloadable products). This does not affect non-digital products you may be selling. By default this setting is turned off, so you must modify that within your account if you wish to use this tool.
For more information about the legislation changes, check our HelpCentre Guide "EU Digital Services VAT FAQ".
How to turn the 'EU Digital Services VAT' tool on
To enable automatic calculation of EU Digital Services VAT on your downloadable products please follow the steps below:
Please note this update is not compatible with our discontinued Classic Checkout. Your store will need to be using the Quick Checkout. If you think you might be using the Classic Checkout still please check this guide for more information.
'VAT Exempt' Consumers
The changes to EU legislation for VAT on digital products is only relevant for B2C transactions, any 'Business to Business' (B2B) purchases will remain exempt from paying VAT. For businesses purchasing digital products, the checkout process will allow VAT exempt consumers to enter their VAT number and once verified the VAT will not be include on the purchase. This will only apply to any digital products in their basket.
Setting product prices as 'inclusive' or 'exclusive' of VAT
You can set your sales to be inclusive or exclusive of VAT by turning VAT on/off in a particular zone.
You can toggle this setting off by following the steps below:
From here you can decide whether to charge VAT in this zone.
Choosing to set a zone as 'inclusive' of VAT
If you select to not charge VAT in a zone, then the EU Digital Services VAT tool will calculate the final price to be inclusive of VAT (i.e. not added on to the total).
This means that if a product costs £10 then VAT is calculated within the total price. Therefore £10 is the final price charged to the customer, but a percentage of this will include the relevant VAT amount.
If a customer is VAT exempt, this will be deducted from the total price to reflect the exemption. This means you will receive the £10 - the VAT.
Choosing to set zone as 'exclusive' of VAT
If you select to charge VAT in this zone, then the EU Digital Services VAT tool will add the relevant VAT to the customer's final price.
This means that if a product costs £10 excluding VAT, then VAT is added to this price. Therefore the final price is £10 + VAT.
If a customer is VAT exempt then the total price to them will be the actual cost of the product (no VAT added).
Validating a customers' resident state
For VAT return purposes, you are required to validate your customers 'resident state' or country of residence with two pieces of non-conflicting evidence. The EU Digital Services VAT feature will automatically do this for you by verifying the billing address and IP address of your customer.
If the IP address and billing address conflict, your customer will be prompted to verify their billing address with an additional confirmation box.
The "Pay Now" button will only become visible once the customer has confirmed their country of residence.
If you need any help enabling the EU Digital Services VAT tool, or have questions about how this may effect you, please do not hesitate to contact your Account Manager at anytime.