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Beginning January 1, online business with consumers in the European Union (EU) is subject to new Value-Added Tax (VAT) rules. If EU-based customers purchase digital goods from your business, this tax change affects you — regardless of where your company is based.

Examples of digital goods are downloadable or electronically transmitted e-books, stock images, music files, software, video footage and training manuals.

This new regulation does not apply to goods that are physically packaged and shipped to an EU-based customer. It also does not apply to “B2B” (business to business) sales.

An EU VAT on cross-border digital goods and services has been in place for a number of years, but the rules are changing as of January 1. For compliance with the new tax beginning on that date, a business must:

  • Charge the correct VAT rates based on the customer’s location (not on the supplier’s location)
  • Validate the customer’s location and store two pieces of non-conflicting evidence (customer’s billing address and a matching IP address)
  • Report the VAT to each applicable EU state or use a Mini-One-Stop-Shop (MOSS) which reports to each EU state on your behalf, and pay the VAT to each applicable EU state.

The tax rates range from 15 to 27 percent across countries in the EU and therefore can be complicated for a business owner — particularly those who do limited business with EU customers and those who do business with customers in multiple EU countries.

WooCommerce has updated its platform and its EU VAT extension to reflect the new tax regulations. For small businesses that sell to EU consumers and use WooCommerce: install the updates to be ready for compliance on January 1. For larger businesses: WooCommerce recommends the Taxamo extension – which is being provided to their users at no charge. They have published a blog post to help their clients understand the regulations and comply with them.

If you use another e-commerce platform, contact the company to find out what you need to do to prepare for the upcoming change.

“Digital goods” impacted by this regulation refers primarily to items delivered automatically via the Internet or electronic network with minimal human involvement. A PDF format e-book qualifies. A live webinar is exempt. If you are unsure whether your products or services are impacted by the new rules, contact an accountant or tax specialist.

Read more about this on Forbes.com.

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