What is value-added tax (VAT)?
A value-added tax (VAT) is a consumption tax that is applied to all goods and services sold in the European Union. The value-added tax works very similarly to sales tax in the sense that every time a customer makes a purchase in the EU, VAT is also applied during their transaction too.
How is the value-added tax applied to online sales?
The VAT applies to all goods sold, regardless of whether or not these E.U. customers are purchasing a physical or digital product from an online store. Businesses must ensure that they are charging the correct amount on each transaction since VAT rates varying for each of the 28 E.U. countries. Digital businesses without a physical presence in the E.U. but sell to E.U. customers are still responsible for collecting and remitting the appropriate value-added taxes.
Prior to January 1, 2015 VAT rates were based on the location of the business facilitating the transaction. After January 1st, VAT rates are now determined by the location of the customer making the purchase. FastSpring’s full-service platform makes calculating and applying VAT easy by automatically detecting each customer’s location via IP Address and appending the right VAT amount to the purchase.
Who is VAT exempt?
1. Transactions between two EU VAT registered businesses with a valid VAT ID will be exempt.
FastSpring’s platform will automatically include the VAT ID on the invoice and ensure that no tax is collected.
2. Transactions in the public interest.
EU countries must exempt certain transactions that are considered to be in the public interest. Examples of services that provide a public good include providing education to children or medical care.
Navigating Proper VAT Compliance with FastSpring
FastSpring is a United States-based seller of digital goods. EU laws require FastSpring to charge VAT Tax (Value-Added Tax) on purchases of electronically delivered products for buyers based in the European Union. FastSpring is required to charge VAT Tax at the VAT rate of the buyer’s country.
VAT taxes are reported and paid to the EU by FastSpring. The invoice we provide at purchase completion includes the VAT amount as well as the FastSpring VAT ID. For more information on VAT Tax, see this page by the European Commission.
FastSpring is registered with the EU through a special scheme set up for companies outside the EU. For more details on this, see this UK Customs / VAT Guidance page.
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