This post is most applicable to those of us who live in the EU and especially the UK.
I am not a qualified accountant so this is not advice, only my opinion and nothing more
So, what is happening?
Currently, if a business sells a digital product (ebook, membership site subscription, software etc) VAT (i.e., sales tax) is charged based upon the country where the business is located.
This has led to a lot of tax avoidance by larger companies.
For example, corporations like Apple, Amazon, Microsoft and many others have previously located their EU businesses in Luxembourg where VAT on eBooks is 3%.
This rate has applied to sales in ANY country in the EU. Even though the rates in most of those countries are higher.
To clamp down on this the EU are, from Jan 1st, changing the rules so VAT is charged based upon the buyer’s location.
So continuing with Luxembourg as the example:
Currently: Luxembourg registered business sells to a UK customer. VAT is 3% (Luxembourg’s “Super Reduced Rate”)
From Jan 1st: Luxembourg registered business sells to a UK customer. VAT charged will be 20% (UK’s rate)
It’s certainly a big shake up with Luxembourg set to lose 70% of its VAT revenue while the UK is set to gain £300 million ($480 million) per year!