If you're selling digital products online, should you pay your digital sales tax?
When you ask the question like this, it seems ridiculous.
Of course you need to pay your taxes or else you're going to be in big trouble!
But strangely enough, when it comes to digital sales tax, people just don't seem to take it seriously.
If your business is just getting started or you're still being wishy-washy about digital sales tax compliance, watch the video above to learn exactly why we recommend taking it very seriously.
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Still Have Questions or Disagree?
We think this issue is really important for the long term success of your online business and was a major reason why we integrated our new online course plugin Thrive Apprentice with SendOwl (a digital payment and online course delivery tool that calculates, collects and manages your digital sales tax for you).
So if anything about the video was unclear or even if you disagree with the proactive stance we're taking when it comes to digital sales tax compliance for your online business, please leave us a comment below.
It depends on where you live. We don’t have state income tax in the state I live in and my CPA said we also are exempt from sales tax for digital content and download, courses; as long as we don’t ship physical goods. So check with your CPA.
If you sell digital products and it’s possible for an EU resident to purchase this product, you have to collect and pay taxes. Even if that resident isn’t in Europe at the time of purchase. And even if you don’t explicitly sell your product to people in the EU. Such is the tax regulation in the EU (and other countries may be following suit).
Would be easier for her (and legal) to inform that people on her website is regulated by laws of her country/state?
I’m planning to sell products in Brazil and in portuguese. I’d rather not pay taxes for EU, maybe even not sell products for EU if its necessary and not RELEVANT.
I’m not sure if using Send Owl, the taxes have to be always for EU or we may adapt for the rules of each country.
You can’t avoid the EU regulation with any kind of explanation on the website. I’m not a lawyer and you need to talk to your lawyer before making any decisions. I believe that if you set up your site in such a way that you can reasonably argue it was in no way intended for EU residents and not advertised to EU residents in any way, you could be on the safe side. E.g. if your entire business is in a language that is not spoken in the EU and you restrict purchases for anyone in an EU country. This could get you in trouble for discrimination, but that’s unlikely for a small business. Basically, unless your business is in Korea or something, I recommend that you make it EU tax compliant.
It’s not the World’s obligation to collect sales tax for the EU. The EU may claim it is, but that don’t make it so and it’s not enforceable.
It’s also un-American (even if you’re not American. Lol).
I say REBEL against the EU lawmakers and their attempt to manipulate the other countries of the World.
Ignore BOTH collecting taxes for the EU AND ignore GDPR, even if it means business loss.
That’s my position and I won’t budge from it. I’m not doing squat for the EU lawmakers, period.
I agree with you from an ideological standpoint. I think what the EU have been doing is hamfisted and an example of poorly executed regulation. But my official stance and recommendation, of course, remains: follow the rules, don’t risk your business for something like this.
You can of course like everyone decide which laws and rules you want to follow. You just need to be prepared for the brown envelope to arrive. If you search for ‘Perry Belcher FTC’ you’ll see the online example of where lawmakers took action (even if he has tried to airbrush this out of his profile since!)
Hi Shane, very good point, there was no way I was going to setup a digital store without haveing some way of charging and paying tax. I have been using Paddle.com and the taxes are built in so I get whatever money is left once the customers sales tax has been taken out, saves a lot of worry.
Thanks for your comment! It’s great to have a system that takes care of all this stuff. The less we have to bother with regulations and stuff, the more we can focus on creating and selling good stuff. 🙂
Steven, I looked through the paddle.com salespage and I’m inclined to use them instead of PayPal (which I’ve used for almost 2 decades) as I set up my course.
Hi Roger, thats good to know. Thank you.
Are you planning to offer a replacement product in the Thrive Members universe for SendOwl and maybe even email list management solution as well? I’d love to just have a simple, integrated and EU law-compliant system for creating and selling online courses.
Not anytime soon, no. Creating such a system would be a large project, possibly even more complex than all of Thrive Themes. It’s not something we can just create on the side.
For now, our focus lies on integrating with the best systems we can find, which we already started doing with SendOwl.
One of the systems to look at would be http://www.digistore24.com.
As far as I know, they are the leading digital marketplace in German speaking countries.
The great thing is that they completely take care of tax issues in exchange for a sales commission. So no monthly fee, no having to hand over tax reports to your accountant.
Plus, they have a really great affiliate marketing system.
I’m writing this as a customer, not as a Digistore representative, so I have no idea whether or not they are planning to expand worldwide.
But still, it would be great to see you guys use their API and make Digistore availabe as a SendOWL alternative. Not because it’s cheaper, but because it’s actually even more convenient.
Thanks for considering and for your great wort. Greetings from Germany!
I’m confused by how to do this in Sendowl.
I have read the info in the Sendowl Knowledge base (https://help.sendowl.com/help/eu-vat-management) and fit into category 2 (below, and as per your video):
“If you sell digital products to consumers or to non-VAT registered businesses in Europe, no matter where you are based, you need to charge VAT based on the buyer’s location. This applies to businesses worldwide (but selling to the EU can be turned off to avoid being caught by this)”
But. In the Sendowl tax settings, the EU tax configuration only provides this option:
“Apply reverse charge and place of supply VAT rates for EU orders”
Is this what I turn on in the settings?
And do I need to do anything else?
Hi Sally,
Yes, in SendOwl, you check that box and it takes care of the tax compliance stuff. It also produces a report for you, which you download and hand to your accountant. That’s the extent to which I interact with this system, anyway.
So, with that being said, how do you pay your digital sale taxes? Is it the same process as you would with paying your taxes as we do in the USA? Or, because it is digital sale taxes, is that handle differently and if so how?
Hi Luis,
For the EU, there is the “One Stop Shop” system, by which you can pay your taxes to one location, instead of all the countries separately. For me, in practice, it simply means that I use a system that automatically does the tax compliance stuff (e.g. SendOwl) and I just hand a report from that system to my accountant.
Thanks, Shane, Is there any way in the future if you can create a video that explains that process, that would be helpful. Just a thought.
First reaction comments here, Shane…
I think the “tax attitude” you are describing is extremely common is the US, espcially for the digital-only products / “small potatoes”-sized, solo operators… Lots of caveats & qualifiers I realize, but I think it’s a very specialized and quite narrow specific type of business owner…in my personal experience.
For years (decade +) here in the US — espcially in California where I live — strictly online businesses selling digital products don’t even bother with business licenses… I believe this non-acceptance of the EU sales tax laws are a “natural” evolution of this mindset…
No city government — at least in my state — goes after any business run from home that doesn’t negatively impact “the neighborhood” (ie, parking problems, clients coming day & night causing traffic headaches, massive deliveries made every weekday, etc.)
Because of this, I think those of us in the US have grown quite complacent (not to mention stubborn) about government regulations.
Most of the micro-solo-run businesses just don’t feel it applies to them, although I understand that the EU is VERY serious about taxes and compliance… This is further driven by so many of new businesses operating on a “shoestring budget” they are willing to take the risk (that they won’t even be caught) until they can afford to “go legit!” Doesn’t mean it’s right (or smart), but I think this is the mindset from people I have talked to…
Obviously, I can only speak about what I personally have experienced in my own area, so the problem may well be more wide-spread than I realize…and effect more & larger business.
I think the only way to get the message across is to do what you are doing here at Thrive in educating your customers and readers.
But, ultimately, all you can do is provide the information. As long as there is the current perception, there will be push-back among the solo home operators I’ve described…
Thanks for shedding some light on this, Karen!
This does make sense to me, to some degree anyway. Of course, I’m not fan of regulations and bureaucratic nonsense either, so I understand the sentiment. I’m far too risk averse to ignore something like this, though. For me, I want a simple solution that takes care of all the regulatory stuff, so I can focus on creating and selling products without having to look over my shoulder all the time.
Thanks, Shane!
I completely understand your “risk-averse” position, especially with the scale of both Thrive Themes & ActiveGrowth…
“Scale” of business (& regulation-defiance 😉 LoL!) is really the psychological / attitude factor here, IMO… 😉
At any rate, it’s great to have somone whose opinion is valued vet all the EU tax solutions for us! 🙂 So, thanks for the effort researching all this and finding the optimal solution…for those who will opt to use it.
It really comes down to personal choice in the end anyway… Your explanation makes logical business sense and I think it’s commendable that you put in all this effort to explain / justify your decision to recommend this solution… 🙂
Thank you for your clear and to-the-point reality check.
Thank you for your comment!
What would be the point to make a digital business if we need to compliant with every regulation around the world?
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The explation of SendOwl is quite simple and plain. I don’t see why not to use SendOwl. The system will calculate the taxes, it manages it, but it not charge you or pay for you.
I don’t know if it will audit and the relevancy of this for different sizes and locations of business.
https://help.sendowl.com/help/charging-tax
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Maybe I’m complicating your explation too much, sorry if it is not relevant. We might be thinking about different size of business and I do believe that we need to go step by step, no need for a hurry thinking about local-small-midish business in other countries (not in EU).
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So, I wouldn’t bother with such regulations and taxes unless size growths and it’s needed.
If it is needed, play by the rules, sure win-win. But, there are already too many regulations, taxes and procedures for a small business in each country.
For a small business, it would be nice to put that for EU citizens, or any citizen around the world, is responsible to pay the taxes is his/her country. In that way, we are not doing any discrimitation and being real (maybe legal) about the limitations of the business. Of course, doing this by a term of agreement and showing the legal side of your business in your country.
This kind of regulation is a thorn in the side of small businesses, I agree. SendOwl is a great solution because it takes care of the details. One of the reasons I made this video is because after our SendOwl regulation, there were some messages from readers basically saying “can’t I just use X instead, it costs a bit less?” – to which this video is my reply. Sure, you can save a few bucks and use a free membership plugin or something like that. But why not pay a tiny bit more and be on the safe and legal side?
“… that for EU citizens, or any citizen around the world, is responsible to pay the taxes is his/her country.”
Unfortunately, the whole point of the EU-regulation is to make it the vendor’s/seller’s business. 😉
Shane, I’ve been selling online courses for 12 years. Based in the UK and selling world wide. My limited company declares all sales revenue to HMRC and submits accounts and pay tax when due.
Are you saying that there is another, separate digital tax I should be paying?
Very much appreciate all you do
Syd
That is correct, yes. You have to pay tax based on your customer’s residence, separate from the tax you pay based on your business’ jurisdiction. You can learn more about it here.
As I understand things, you are liable for EU sales tax for sales to residents of the EU, regardless of where you are based and where the EU resident is at the time of purchase. Correct?
That liability should be obvious to vendors based in the EU. Not so obvious to sellers outside the EU. Perhaps the post should emphasise the latter more.
The question as to how real (big) that risk is for non-EU based sellers is another matter. And understandably, not one that Thrive should be concerned with.
That’s correct, yes. How big of a risk it is I can’t really assess. Basically, you’re fine until you aren’t. It’s the turkey-before-thanksgiving problem.
Hi Shane, considering all that’s been discussed, who are you supposed to remit said EU taxes to?
I’m not remitting them to my home country (Canada), so who are they to go to?
It makes zero sense to me.
There’s what they call the “one stop shop” system. You submit your taxes to a single entity in the EU and they take care of the distribution to the different countries (or who knows what they actually do). Basically, you need to have an accountant who can set you up for this, so you just get a bill that you pay.
Speaking of checkboxes in opt in forms using thrive leads, how do we do that?
We have a post about that here.
I’m starting to think with Amazon dominating the field, it’s easiest to publish content via their platform. In other words, to take the hit on profit for the simplify of one line item “income” on your books. What do you think?
If you’re selling books, Amazon is probably a good place to do so. For any other content, I’d stay well away from it. I think sacrificing your own platform is too great of a cost.
Thank you, Shane, very much for this explanation.
It has shocked me also how people were so concerned with GDPR and very few are concerned with taxes.
Taxes are much more important!
I think though that we need to make a distinction between businesses that are under the 100k/year threshold of digital sales and those who are above it.
I’m a corporate lawyer but not a tax expert, and as far as I understand, businesses (in Switzerland) that are below the 100K/year of digital sales (to EU) threshold are not required to register for VAT in EU (at the countries where they sell).
It’s a new amendment that entered into force by the EU Authorities in January 2019.
I think there is also another exemption for companies that sell for less than 10K/year.
I’ve noticed several businesses splintering their operation across several LLCs to optimize for taxes by not exceeding those thresholds.
We need to double check all that anyways to make sure what exactly is required especially from Swiss Businesses selling to EU customers.
Any thoughts about these tax issues are highly appreciated.
Thank you guys so much!
Thank you for your comment!
I have to read up on this. I’m thankful if this is the case for EU sales. This was one of the most outrageous things about the regulation: it mandated that you had to pay these taxes from the very first cent of earnings in the EU. I will look into this to see if I need to update the post with more information. Thanks again!
Thank you for this video. You do so much to keep us from blundering into disaster.
Hi Shane,
I am concerned about how to handle the digital tax. I live in Australia and I intend selling my product worldwide. How is the digital tax handled for say the EEC, USA etc. Will Sendowl cater for this?
Great info Shane! I’ve recently subscribed to Quaderno to help me deal with the whole tax madness. I had no clue I had to collect and remit VAT and other taxes before. They helped me start fresh from the January (invoices and taxes), phew! I recommend the platform. The tool and customer support are great (not an affiliate just my honest point of view).
I am living in France, being Artist peintre as well as author and I dont have a TVA number but only a Siret nr as mini entreprise and TVA non-applicable, paying tax via la Maison des Artistes. But I cannot put the Siretnr in. But my clients are Dutch ( as me) and I use my Dutch bankaccount. Don’t need to pay tax in The Netherlands.
I’d suggest getting a tax advisor 🙂