Dealing With VAT
Spoiler Alert: you don't have to worry about it.
In 2015, the EU made a major change to its VAT regulations that require businesses to pay VAT according to the locations of consumers. This was meant mainly for large companies that have been avoiding higher taxes by establishing presences in places with lower VAT. Unfortunately, this also put a burden on independent creators who sell digital products to customers in Europe and the UK.
Going forward, this is what creators on Gumroad need to do to properly handle VAT for their digital products:
Go back to making awesome stuff.
In other words, we're on it. For digital products, Gumroad collects VAT as required and remits it to the EU and to the UK. You won't need to fill out any forms, register for anything, or send anything out. Your (EU- or UK-based) customers, will see (and pay) the added VAT on their purchases. For the record though: Gumroad does not charge or remit VAT on physical products sold to customers in the EU/UK.
To explain further...
When you sign up with Gumroad, you are agreeing in our Terms of Service that you are basically selling your products to us, and we are selling them on your behalf. We are the "merchant of record."
Therefore, when your customers buy a product on Gumroad, they are buying the product from Gumroad. As a result, we are responsible for VAT. You are not. The VAT that customers pay does not touch your account whatsoever. We pay it directly to The Office of the Revenue Commissioners in Limerick, Ireland.
Therefore, it does not matter what your business standing is - you might be a large business, a small business, a small entrepreneur. As far as the EU or the UK is concerned, you are not involved in the transaction that your customers make. They are dealing with Gumroad, and Gumroad has to charge VAT.
To summarize, when Gumroad pays you, we are paying you directly for selling your product to us. If your attorney or accountant advises that you need to invoice us on a weekly basis for us paying you out, that's fine.
These changes were neither easy nor cheap, but it was crucial for us to make this as smooth and invisible as possible. Handling VAT will cost us approximately 1% of the transaction. We've decided it was important to absorb that fee so there will be no change to our fees.
We like how easy our platform is to use and how low our fees are, and we plan to keep things that way.
As always, let us know if you have any questions about these changes! We're here to help.
Since the 2015 law went into effect, many EU countries have changed their local VAT rates for e-publications like:
|Ebooks||Magazines & Journals||Children's books|
|Newspapers||Drawing or coloring books||Brochures|
|Audiobooks||Music in manuscript form||Maps|
In the words of the EU's lawyers, an e-publication can be classified as...
Books, newspapers and periodicals either on physical means of support or supplied electronically or both (including brochures, leaflets and similar printed matter, children’s picture, drawing or coloring books, music printed or in manuscript form, maps and hydrographic or similar charts), other than publications wholly or predominantly devoted to advertising and other than publications wholly or predominantly consisting of video content or audible music;’.
To allow Gumroad to charge these reduced fees, we ask that if you are selling an e-publication to toggle this switch in your product's edit tab
By doing this, we will be able to calculate the lower VAT rate for your EU customers. They'll be very happy you did so!
If you toggle this switch, we will not charge VAT (0%) on e-publications purchased by customers in the UK.
Frequently Asked Questions
I am registered for VAT in my EU country or in the UK - why do you have to charge VAT to my customers?
The new VAT regulations (as of January 1, 2015) require digital portals, platforms, gateways, and marketplaces that electronically supply, authorize payment, and handle delivery/download of electronic services to collect, report, and remit VAT. Gumroad is the entity with whom your customers are doing business, so we are responsible for VAT, not you.
How do I report VAT?
To the extent that you have to report VAT, please consult your country's tax agency to determine the exact requirements. We cannot and probably should not provide you with any information about your specific situation, sorry.
What if my customers don't have to pay VAT?
If your customers have a VAT ID, they simply have to enter it into their Invoice, which they can generate through their Gumroad receipt. The invoice they receive will reflect this refund, and the refund will hit their credit card accounts or PayPal accounts in a matter of days.
How do I send invoices to my customers?
Your customers have the ability to print their own invoices, from Gumroad, on their receipts that we email to them after a purchase is made successfully. Every email receipt has a button that says, Generate Invoice that, when clicked, allows customers to create an invoice. The VAT they have paid on these purchases is explicitly detailed on this invoice. Remember - your customers are buying from Gumroad, not from you, so we send them invoices.
Can I choose not to charge VAT on my products? Or make VAT inclusive in the price of my product?
What happens if I refund a customer from the EU/UK who has paid VAT?
When you refund a customer, they receive 100% of what they paid Gumroad, so they will receive their VAT payment back.