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App Sales & European VAT
The Value Added Tax (VAT) implications of making Apps available to download in different European countries is a common area of concern for App developers. Free to download Apps do not incur VAT as they are not classed as sales; however ‘paid for’ Apps will be of interest to the VAT authorities and it is the developer’s responsibility to get it right.
You will need to set up the right infrastructure to enable you to meet your compliance obligations. It is not always an easy task and you should discuss with us the sort of data you may need to capture as early as possible in the App’s development.
Apple App Store or Android?
For VAT purposes, the way Apple structures the App Store agreement means that Apple acts as your agent each time your product is downloaded. Each download is effectively two sales; you selling to Apple and then Apple selling on to the end user. The benefit for the App developer here is one of simplicity – Apple handles the more onerous VAT compliance requirements whilst you, the developer, effectively only have one business customer – Apple. For the vast majority of developers using the App Store platform, these sales will be zero-rated for VAT purposes.
If you are selling your App on Android/Google Play, the transaction itself happens directly between you (the developer) and the end user. It is therefore the developer's responsibility to collect the correct amount of VAT and pay this over to the tax authorities. To ensure the correct amount is charged, the developer has to perform certain checks on each download to determine:
- whether the end user is a business or a consumer; and
- the location of that end user - as different countries within the European Union (EU) will have different VAT rates and thresholds.
Assuming many end users will be consumers, once your sales reach a certain threshold in an EU country, you are required to register for VAT in that jurisdiction.
You will also be required to begin collecting and paying the correct amount of VAT to the local tax authorities.
Changing rules – January 2015
App purchases are often termed electronically supplied services for VAT. This attracts a special VAT treatment. Presently, EU developers must register for VAT in their home country and charge VAT on relevant downloads at their home country’s VAT rate. Non-EU developers should select an EU country and register there, handling EU VAT obligations through that territory.
These rules are changing with effect from January 2015 and from that point, developers must charge VAT at the rate applicable in the customer’s home country. As you might imagine, this presents real complications for developers who will need to charge at different rates to different customers. The good news is that developers should not need to file VAT returns in more than one country – a ‘one-stop-shop’ approach has been created that will allow developers to submit VAT filings to just one EU tax authority, although the information contained will relate to different countries and different VAT rates.
Well, we all continue to hope that Google catches up and agrees to implement a similar mechanism to Apple. In the meantime, any developers making Apps available in Europe should get in touch to discuss their needs. The VAT changes discussed above will place a large burden on developers and time is running out to put the systems and controls in place that will be required from day 1 of 2015.F&L