Seller Handbook

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Update: European Union Rules on Digital Item Sales

Get the latest news on regulations affecting Etsy shops selling digital items to buyers in the EU.

By Nadine Heintz Jan 20, 2015
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Photo by Elise Renouf

If you sell digital items on Etsy, you’ve probably been following developments related to the European Union’s new rules on value-added tax (VAT). The rules, which took effect on January 1, state that businesses selling digital goods and delivering them electronically to customers in European Union member countries will be required to collect and pay VAT based on the VAT rates of the country where the customer is located, not the rates of the country where the business is located.

We know it's been a frustrating and confusing situation for our global community of sellers as we've grappled to establish the best path forward. Please know that we’ve been taking your feedback and concerns very seriously as we work to understand the new rules. We want to find the best approach for our entire community of sellers.

In a recent blog post, we announced that we’ve been exploring ways to make the process of paying VAT easier for sellers. Based on clarifications we’ve received over the past month, we’ve decided to go further and collect and remit VAT on behalf of Etsy sellers based in European Union countries who are providing digital goods to buyers in the EU via automatic download. If you’re based in the EU, that means you won’t have to process VAT returns on automatically downloaded digital items.

To be clear, your buyers will be paying VAT as part of their total purchase price. We will calculate the VAT based on the location of the buyer and determine the VAT at the time of sale. Etsy will then remit the VAT to the appropriate taxing authority as required. We'll share the specific details of how we'll handle the collection process as soon as possible (and well before the tax filing deadline).

For sellers outside the EU, we ask for your continued patience while we determine what is required and how best to proceed. We hope to have an update very soon. In the meantime, please continue to give us your feedback in the comment section below. Thank you!

Update (added on 1/26)

Thank you for your comments! We’d like to clarify some of your common questions based on information we’ve received from our advisors and government officials, and through our own research. Please keep in mind that we can’t give legal or tax advice to individual businesses, so  we encourage you to contact your local governments for specific advice related to your shop.

1) Could my shop be penalized for non-compliance?

Because the government views Etsy as the party responsible for collecting and remitting the VAT, to the best of our knowledge, individual sellers will not be penalized for non-compliance for digital items sold on Etsy.

2) Do the VAT regulations apply to businesses based outside of the EU?

As many of you have pointed out, the digital VAT rule does apply to businesses based outside the EU who sell to consumers in the EU. VAT must be charged in those digital sales. However, as we note above, individual sellers will not be penalized for non-compliance because Etsy is considered to be the responsible party. Etsy will take responsibility for collecting and remitting VAT.

3) Are sellers based in the UK who are below a certain sales threshold exempt from charging VAT on sales of digital items via automatic download to customers in based in the United Kingdom?

According to our research, this exemption does not apply, because Etsy is considered to be responsible for collecting and remitting VAT, not individual sellers, and Etsy does not meet the exemption requirements.

4) Are the new VAT rules on digital items being extended to physical goods in 2016?

There is no pending or near-term legislation to impose the rules on physical goods, according to our government contacts in the EU. Currently, this is only a concept being discussed among member countries of the Organisation for Economic Co-operation and Development.

We know you have questions about how we will handle VAT for shops based outside of the EU and how the collection process will work for shops based in the EU. We’ll share that information with you as soon as possible. Thanks again for your patience!

Author

Nadine Heintz from NadineShopStudio

Nadine Heintz manages Etsy’s Seller Communications Team, which includes Product Education and Seller Editorial Content. When she's not working, she's playing superheroes and crafting with her two sons.

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