The EU Digital Tax

So you have heard about the EU Digital Tax, and are wondering if this applies to you?

Let’s take a look at what this is and what it all means when selling digital products because these rules are particularly important for coaches and educators who sell their courses to customers within the EU

Wait - does this apply to MY course?

The question is, do you class this purely as a digital product with no live involvement from you?

There are elements of live interaction you can integrate to redefine if your product is purely digital or live.
The goal is to incorporate enough real-time, personalized engagement that it distinguishes the course from purely automated digital services.

I found all kinds of interesting ways people have used to keep their live classification, but here are some of the ones I agree with.

1. Community: Having a members group or community with live interaction

2. Live Webinars or Video Calls: Hosting live sessions where students can interact in real-time with the instructor. These don’t have to be lengthy or frequent but should be integral to the course.

3. Live Q&A Sessions: Conducting live Q&A sessions where students can ask questions and receive immediate answers from the instructor. This provides a platform for real-time engagement and support.

4. Feedback/support from a real person: Can a student ask for feedback on their work, or ask for support and help?

I always include live elements to my courses via communities and live calls!

Purely digital products?

I always recommend to our members to have a live element to their digital products.

If that is not for you, let’s take a look at what this is and what it all means when selling digital products because these rules are particularly important for coaches and educators who sell their courses to customers within the EU. (These rules apply regardless of what platform you use to sell).

What is the VAT?

VAT is a tax on goods and services that applies within the EU. How this works depends on whether you are selling to consumers or businesses.

Who Needs to Charge the VAT?

If you are a coach or educator or seller or digital products based either inside or outside the EU and you sell online courses to consumers (non-business entities) in EU countries, you must charge VAT on these sales. 

If you are selling digital services like online courses to consumers in the EU, you typically need to charge VAT regardless of whether you are VAT registered in your own country.  

The audience matters.

The EU VAT rules for digital services, including online courses with live interaction, primarily target consumer (B2C) sales. Business to consumer.

Here’s how VAT applies differently between consumer (B2C) sales and business-to-business (B2B) sales.

VAT on B2B Sales

If you supply a B2B digital service to an EU business customer, the customer is responsible for paying VAT through the reverse-charge mechanism in their country. This means the business buying the services declares both the output and input VAT.

As a UK business, you have no EU VAT obligations for these sales, and the supply is not subject to UK VAT. You should indicate that the reverse charge applies and exclude VAT from your invoice. Clearly state that the responsibility for accounting for VAT rests with the buyer. We recommend adding this to your terms and conditions.

VAT on B2C Sales

If you supply a B2C digital service to an EU private consumer, your business must charge, collect, and remit EU VAT to the tax authority of the customer's country. For instance, if you sell digital services to a consumer in France, you need to charge and collect French VAT at the appropriate rate and remit it to the French tax authorities.

For B2C digital services, you can handle EU VAT in one of two ways:

1. Register for VAT in each EU member state where you supply digital services to consumers.

2. Register for the OSS (One-Stop Shop) scheme in an EU country of your choice.

If you are using Funnel Skechers, we highly recommend using a system such as Quaderno to handle your tax side, as Funnel Sketchers does not yet automatically identify and apply the tax rate of the consumer to your product. You can manually set a tax rate per product however,

Practical Implications

• Consumer Sales: Every B2C digital service sale potentially involves different VAT rates and compliance obligations based on the customer's location. The services need to be compliant with the consumer VAT rules of each EU country where the customers reside.
  

Business Sales: B2B transactions are generally less burdensome from a VAT collection standpoint because of the reverse charge mechanism.