Implementing New VAT Rules for Downloadable Products with Ecommerce

Law change in 2015: How to define tax rates for digital products and services

New VAT regulations for digital products and services will apply throughout the EU from 1 January 2015. In this article in we will show you how to apply the changes to your Ecommerce shop.

What do I need to do?

• First you need to set up the new tax classes in the administration area, following these steps:
• Create new tax classes for digital products and services
• Create a tax area for every EU country you are selling to
• Define the taxes for the tax areas
• You can find further instructions below under How do I set up the new tax classes and areas?

• If you already offer digital products or services in your shop, you must determine the new tax class for all these products and services. You can find out more below under, How do I set which VAT rate applies to which product?
• If you create new digital products or services, make sure to select the correct tax class.
• When you set prices for your products, bear in mind that the gross prices you have entered are applicable for the home country of your shop. The gross price in some other countries may be higher or lower because of the different tax rates across EU countries.

How do I set up the new tax classes and areas?

1. In the Administration area in the main menu, select Settings and then Tax calculation.
2. Select Customise.
3. Confirm that you want to customise the tax matrix.
4. Select Tax classes.
5. At the bottom of the table in the column ID, enter the ID “Digital products and services” and in the column Name the name, “Digital products and services”.
6. Save the changes.
7. If you are selling eBooks in your shop, repeat steps 5 and 6 using “eBooks” as the ID and Name.
8. Select Tax areas.
9. For every EU country you are selling to, (including your own country) create a tax area. Enter at the bottom of the table in the column ID as well as in the column Name the name of the country.
10. Save the changes.
11. If you want to create tax areas for other countries, repeat the steps 9 and 10.
12. Select Assignment of countries.
13. In the table you can see the countries. For every EU country in the column Tax area select the corresponding tax area – for instance for Belgium the newly created tax area “Belgium”.
14. Save the changes.
15. Select Tax matrix.
16. In the table you can see the newly created tax areas/tax classes. The tax class, EU country, is now obsolete since you created new individual tax classes for every EU country. Now you have to insert the taxes for every EU country in the table. In the columns no VAT, standard and reduced, insert the taxes of your shop’s home country. If your shop is based in the UK for instance, enter “0”, “20” and “5” for all countries. In the columns Digital products and services, and, if applicable, eBooks, you have to enter the taxes for that particular EU country. For Digital products and services this is usually the normal VAT. You can find the VAT for eBooks in this document on page 19 (under “E-books”).
17. Save the changes.

The new tax classes are now ready to be used in your shop.

How do I set which VAT rate applies to which product?

1. In the administration area in the main menu, select Products then Products.
2. The table shows an overview of all products in your online shop. Select the item number of the product you want to edit.
3. Select the tax class for this product in the section List price, order unit, tax class under Tax class.
4. Save the changes.