Seller Handbook

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Etsy's New Collection Process for Value-Added Tax (VAT) on Digital Items

Get the details on Etsy’s new process for collecting VAT on digital items sold to buyers in the European Union.

By Nadine Heintz 24 Jul, 2015
Photo by Hearts Desire

What's New

Today, we’re excited to announce that we have implemented the site updates necessary for Etsy to begin collecting value-added tax on digital items from buyers in the European Union.

As many sellers of digital items know, the European Union implemented new rules on value-added tax (VAT) for digital items earlier this year. The rules, which took effect on January 1, 2015, state that VAT on digital items delivered via automatic download will be taxed based on the country where the buyer is located, not where the seller is located. The rules apply to any shop selling digital items that can be automatically downloaded at the time of purchase to buyers in the EU, no matter where the shop is located. The rules do not apply to items delivered by email. To be clear, EU buyers – not Etsy or Etsy sellers – will be paying VAT as part of their total purchase price.

In February, we announced that Etsy is responsible for collecting VAT on digital items delivered by automatic download and remitting it to the appropriate tax authorities. Since then, we’ve been working on the site updates necessary to begin the collection process. Those updates are now live on Etsy.

How the Collection Process Works

  1. When shoppers visit Etsy, the site will automatically detect if they are located in the EU.

  2. Shoppers identified as being located in the EU who view a digital item listing will automatically see the price inclusive of VAT for that digital item based on the specific VAT rates of the EU country where they are located. The VAT-inclusive price will appear on the listing, cart and purchase page for the digital item. For example, the VAT-inclusive price for a £1 item with a 20-pence VAT fee would appear as £1.20 in the listing. This is common practice on e-commerce sites in the EU and something shoppers there will be familiar with. Please note that the VAT-inclusive price will appear only on digital item listings being viewed by shoppers located in the EU. To be clear, the VAT-inclusive price will appear only on digital listings for items available by automatic download, not those delivered by email.

  3. EU buyers will see the digital item price and VAT fee broken out separately on their receipt. So, in the example noted above, the item price would be listed as £1 and the VAT fee would be listed as 20 pence in those places.

  4. If an EU buyer purchases a digital item, the collection process for VAT will vary based on the selected payment method. If a buyer selects the Direct Checkout payment method, Etsy will collect the VAT amount before it reaches your Shop Payment Account. If the buyer selects another payment method, including PayPal or “other,” the buyer will pay the appropriate VAT fee to you as part of the total sale. As the seller, you will receive the VAT fee from the buyer and Etsy will include the VAT fee for each non-Direct Checkout digital item sale on your monthly bill in order to collect the VAT.

  5. Etsy will remit the VAT fees to the appropriate tax authorities in the EU.

In Your Shop

Our goal is to make the process as seamless as possible for both sellers and buyers. You do not need to take any action in your shop related to the VAT collection process. However, if you are already collecting VAT on digital items sold in your Etsy shop and are wondering how this might affect your approach, or if you are looking for any other specific advice, we encourage you to contact a professional advisor.

Thank You!

Thank you so much for your patience throughout this process. We know the new VAT rules have been a major concern for our digital sellers and we’ve taken your feedback into serious consideration as we developed the site updates necessary to apply VAT on digital items. In addition to collecting feedback from sellers in the Forums, on the Seller Handbook and through Conversations, we conducted user research with sellers around the world to create the best solution for our global community.

More Information

If you have more questions, please read How VAT Works on Etsy and check out this FAQ for more details about Etsy’s new collection process for digital VAT. Please feel free to share any additional questions or concerns in the comments section below. We’ll monitor your comments and respond to common questions and concerns in the coming days.

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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