6 things you MUST know before you start selling courses to customers in EUROPE.

Now that you have created your digital product you are excited to make sales across the world. You’ve put a lot of hard work & passion into this project and you know you can help many people.

There are literally thousands if not millions of people that need what you are selling and your products deserve to be seen by them regardless of their location.

That being said, there are Tax & legal laws you need to understand so you start selling the right way without landing yourself in trouble further down the line.

And while that may sound boring it means you do not risk losing your business and having to pay backdated tax and penalties for ignoring these strict requirements. It also means you are setting yourself up for success & building your business on a solid foundation from the get go.

If you are a business selling digital products to customers in Europe you need to get familiar with VAT (value added tax). Yes this is the case no matter where you are in the world, for example if you are based in the USA, Australia, South Africa etc.

Now maybe till now you thought as long as I pay my taxes in my own home country, it’s all happy days. But this is not the case, as a seller of digital goods you could be responsible for charging, collecting, filing digital taxes, and then paying this to your customers country tax office.

Now the good news is some countries have thresholds of the amount of sales you can make before you need to start worrying about digital taxes, while other places such as Europe expect you to get your skates on right away.

Lucky for you I’m going to make things simple for you, so you know what you need to do and then focus on the things that you are good at like getting your knowledge to the world and making money in the process. Lets jump in!

#1 What is VAT?

As mentioned earlier if you sell to customers in EUROPE you need to get familiar with VAT. Vat is the equivalent to sales TAX in the USA or GST in Australia. The umbrella term for these taxes is called consumption taxes.

The main theme is that the end customer pays the tax, because they are the ones actually consuming the end product. Hence the name! And you as the seller acts as a middle person by passing the tax to the government via your quarterly returns.

#2 what is considered a digital product in European tax law

So before you actually get ahead of yourself what actually counts as a digital product in Europe. The European Commission does have four criteria that will certify whether something is a digital good.

1 – it’s not a physical, tangible good

2- It’s essentially based on IT. The offering could not exist without technology

3 – It’s provided via the internet or an electronic network

4 – It’s fully automated and requires minimal human intervention

Common examples of e-services that you supply electronically includes things like:

Supplies of images or text, such as stock photos, screensavers, e-books, online courses and other digitised documents, for example, PDF files
Supplies of music, films and games, including games of chance and gambling games, and programmes on demand
Online magazines
Website supply or web hosting services
Distance maintenance of programmes and equipment
Supplies of software and software updates
Advertising space on a website

The following is a list of services that are NOT considered to be electronically supplied because there is some manual or live element involved:

PDF document manually emailed by seller
Live webinar
Online course consisting of pre-recorded videos and downloadable PDFs plus support from a live tutor

Hmm now maybe you’re thinking of creating a facebook group and jumping on to answer questions here and there might be the answer, but unfortunately that isn’t enough and will still be considered as a digital product as far as the EU are concerned.

Another way people try to get around this is by creating a live element such as live coaching calls if they are selling a course for example and on first thought this could make sense.

However, is this really realistic in the long run? Can you realistically handle this all year round. Even the big names in the online course world have their courses sell on evergreen without the live element most of the year when they are not doing a launch. That’s how they come up to their big annual revenue.

So although it could possibly be a short term solution it would be a shame to limit yourself in the long run. Dealing with taxes isn’t as scary or as complicated as you think once you have the right people helping you. The benefits do outweigh the cons in many ways, including financially.

#3 selling to other businesses (business to business)

One thing to note is you do not need to charge or deal with VAT if you are selling to VAT registered businesses in Europe however there is a process you need to follow in order to show you are verifying the business is indeed VAT registered, which involves verifying the buyer’s location and tax registration number, once the tax registration number is verified you do not add any tax on the total cost and you make a note on the tax invoice that you’re using the reverse charge mechanism.

Side note – if you’re worried & feeling overwhelmed about how you’re supposed to do everything correctly and meet all the legal requirements on autopilot (without taking on tons of admin work!), fear not we have a great recommendation at the end of this guide 🙂

#4 Location Location Location

Now what makes dealing with digital taxes especially confusing is the ‘place of supply’ rule which in simple terms means you tax the vat rate of where the customer lives – not you the seller.

To make things clearer let’s say for example Jess made 5 sales this month selling her digital course in the EU. She sold 2 online courses in Italy, 1 in Spain and 2 in sweden.

The rate she would charge is 22% Vat per course sale in Italy, 21% Vat in Spain and 25% Vat per course in Sweden as these are the individual rates of VAT for each country.

Why do they charge where the customer is located?

Because Up until 2015 that VAT rate charged on digital products depended on the seller’s country of residence.

However big companies like Amazon took advantage of this, for example Amazon sold its e-books through its head office in Luxembourg, with a reduced rate Vat of only 3%.

EU Member states came up with the idea to charge VAT in the local rate to where the customer (consumer) is based. The supplier would need to then transfer VAT to the government where the consumer lives also known as (country of consumption)

This idea was a good solution to the problem but a real headache for small businesses such as you and me. They did create a scheme (VAT MOSS) which simplifies the process a little which we will dig into in point 5.

#5 VAT MOSS

Now you have established whether or not you need to charge VAT, you have two options

1 Register for VAT in each individual EU country where you make the sales (YES EVERY SINGLE EU STATE, so if you sell to all EU countries that will be 27 states you have to register in & comply with each states different rules and timelines for tax returns!

Or…..

2 You can register for a Non-Union Vat -MOSS (which stands for value added tax: Mini one stop shop) in ONE EU country of your choice (much simpler!).

One thing to note since Brexit the UK is no longer part of the EU which means you will have to register for Vat in the UK and file quarterly returns separately to VAT MOSS.

If you feel overwhelmed that’s no problem plan 4 profits do both UK and EU Vat moss returns for our UK & international clients. This is literally the sea we swim.

#6 Registration deadlines for VAT MOSS

You must register for moss by the 10th day of the month following the first sale to an EU customer.

For example if an EU sale is made during July 2021 the business must be registered for Moss in a member state by the 10th August 2021. After that you will need to stay up-to-date with their rules and file quarterly returns.

From the end of the quarter, you have 20 days to file and pay whatever you owe. So the VAT return deadlines are as follows:

20th April – for the 1st quarter ending 31st March

20th July – for the 2nd quarter ending 30th June

20th Oct – for the third quarter ending 30th September

20th Jan – for the 4th quarter ending 31st of December

Trying to figure out how to bring this all together?

You may have lots of questions in your head right now….however a great solution for everything we have discussed above is Quaderno.

Quaderno deals with everything we have discussed above like..

It Calculates the right amount of tax to charge each customer, right on your checkout page
It Automatically verifies the tax IDs you receive from customers.
Collects and stores the customers location & evidence that you need to get from every sale.
Creates and sends invoices in multiple languages and currencies.
Send invoices automatically.
Integrates with popular applications & software’s such as Strip, Kajabi, Thinkific and many more

You can check them out over here!

Well that was a lot to take in but I hope I made it clear enough, but still if you have any questions regarding VAT MOSS or submitting Vat returns, feel free to email me at hello@plan4profits.co.uk

*Although Quaderno is an affiliate partner we only recommend solutions we believe are the best on the market.