Starting January 1, 2015, there will be significant changes to European Commission rules related to Value Added Tax (VAT) on sales of digital goods and services to consumers in Europe. The new rules state that all businesses selling digital goods and delivering them electronically to customers in European Union member countries will be required to pay VAT based on the VAT rates of the country where the customer is located, not on the rates of the country where the business is located. If your shop is based outside of the EU, it is unclear how the VAT rules will be enforced.
Some Etsy shop owners have asked if Etsy will be handling VAT payments on digital goods under the new rules. Historically, Etsy has acted as a venue on which individual entrepreneurs run their businesses, with Etsy sellers responsible for paying appropriate sales taxes for those businesses. We are treating VAT the same way, with sellers expected to collect and pay VAT.
We understand that the new regulations will be an added burden for shops that sell digital items and deliver them electronically to EU customers and we’re working on a tool that will make the process easier for you. We will be releasing more details in early 2015. The EU is also attempting to make the VAT payment process easier by allowing businesses based in member countries to opt for simplified VAT registration and return filing, known as mini one-stop shop, or MOSS. Get more information about mini one-stop shops on the European Commission website.
Visit the European Union Commission website for more information. If you are an Etsy seller based in the EU, look for information on requirements specific to your country.
We encourage you to consult with a tax professional for specific advice about your business.
Updated on 12/23:
We've heard your concerns about how the new VAT rules on digital items will impact your business. This is a complex issue that we are all navigating together; please know that we are actively working on some solutions to help. We realize that it would be more helpful to provide more specific information on some of the changes we're making related to your concerns:
1) Providing information on buyer countries: Beginning in January, you’ll be able to verify the country of your buyers.
2) Control over where you sell items: We’ve heard from you that you’d like to be able to control the countries in which you sell digital items. We are looking into the feasibility of this and will update you in early 2015.
Some of you have also asked if the new VAT rules apply to digital items that are delivered to customers by email. At least in the UK, the government has taken the position that PDFs manually emailed by sellers are not covered by the new rules. We will continue to provide updates as soon as we have new information.