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How Europe's New VAT tax laws affect your eBook Pricing starting January 1, 2105


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#1 AQCrew

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Posted 17 December 2014 - 12:23 AM

We dread having to even use brain cells on this issue -- and yet, here goes:

 

Anyone self-publishing books through Amazon's KDP program likely received the below email (way, way below in red).  

 

This is our extremely abbreviated version of what-you-need-to-know and what-you-need-to-do come January 1, 2015:

 

  • It is our understanding that you need to do NOTHING to the European prices of any of your Kindle ebooks that are currently published within your KDP.  Amazon will be making a one-time adjustment to the European price for you in all its European territories.  This price adjustment will ensure that the European price shown to potential customers on each Amazon's European sites -- like Amazon.co.uk or Amazon.de or Amazon.es or whatever -- will INCLUDE the proper percentage of VAT tax for that particular country.  So again, you don't need to do anything, except maybe pay attention to the changes that they make.

 

  • That said, if you are selling ebooks on OTHER distribution sites like Kobo, Apple's iBooks, Barnes&Noble, etc., you need to make sure that the European prices of your ebooks sold in European territories INCLUDES the VAT tax.  If you do NOT check to make sure that your prices are VAT-inclusive on the other distribution sites, you run the risk that they do NOT include the VAT tax.  What will this mean?  This means that you run the risk of unintentionally subsidizing the VAT tax by NOT properly raising your prices to include it.  Check to make sure that your current pricing on other distributors properly includes the VAT tax.  If you are uncertain, then you might want to raise your prices by 20% across the board to cover yourself.   

 

  • IMPORTANT: If you ignore this issue, and do NOT check your European prices on the other distribution sites, you run the risk of Amazon price-matching its higher properly adjusted VAT tax prices to your other vendors' lower non-properly inclusive VAT prices.  So you'll lose money on your European Amazon sales because they will be "price-matched" lower than they should be.... Europe is going to take the tax from you either way.  The price they show the European consumer assumes that it INCLUDES the VAT tax (and the percentage of VAT tax is different in each country).  In other words, the price that European consumers expect to see is ebook + VAT tax = retail price.  This is confusing to Americans because retail prices in the US almost never include sales tax -- and the consumer does not get charged sales tax on digital goods like ebooks at all. 

 

  • Feel free to poke your eyes out at anytime

 

 

 

---------------------------------

AMAZON'S OFFICIAL EMAIL SENT DEC 16, 2014 to ALL KDP CUSTOMERS

 

 

This is a follow-up mail to remind you of the upcoming changes in European Union tax law and what this will mean for your books in Kindle Direct Publishing.

On January 1, 2015, European Union (EU) tax laws regarding the taxation of digital products (including eBooks) will change: previously, Value Added Tax (VAT) was applied based on the seller’s country – as of January 1st, VAT will be applied based on the buyer’s country. As a result, starting on January 1st, KDP authors must set list prices to be inclusive of VAT.  We will also make a one-time adjustment for existing books published through KDP to move from VAT-exclusive list prices to list prices which include VAT. We'll put these changes into effect starting January 1st; you may always change your prices at any time, but you do not need to take any action unless you wish to do so.

One-time Adjustment for Existing KDP Titles:
Starting January 1st, for any titles already published in KDP, we will make a one-time adjustment to convert VAT-exclusive list prices provided to us to VAT-inclusive list prices.  Subject to minimum and maximum thresholds, we will add the applicable VAT based on the primary country of the marketplace to the VAT-exclusive list price provided.  For example, if an author had previously set £5.00 as the VAT-exclusive list price for amazon.co.uk, the new VAT-inclusive list price will be £6.00 because the applicable VAT rate in the UK is 20%. Please note, if an author had set a consistent VAT-exclusive list price for all Euro based Kindle stores, those prices will now be different due to varying VAT rates for the primary country of each Kindle store.  For example, if an author had previously provided a €6.00 VAT-exclusive list price foramazon.deamazon.framazon.es, and amazon.it Kindle stores, the list prices including VAT will be €7.14 (19% VAT), €6.33 (5.5% VAT), €7.26 (21% VAT), and €7.32 (22% VAT) respectively.

Minimum and maximum list prices for the 35% and 70% royalty plans will now also include VAT. For books published before January 1st that would fall outside these new limits after VAT is included, we will adjust the list price to ensure the book remains in the same royalty plan that was previously selected.

Learn more about the new minimum and maximum KDP EU list prices:
https://kdp.amazon.c...d=ANRML55B0BWBK

Royalties will continue to be calculated based on the list price without VAT. The amount of VAT applied depends on the country where the customer is located. Consider a book with a £6.00 VAT-inclusive price on Amazon.co.uk, for sales to customers in the UK we would apply the UK’s 20% VAT rate and the price we use to calculate royalty would be £5.00. The 23% Irish VAT rate will apply to purchases from Ireland, so a customer buying from Ireland would still see £6.00 but, applying the 23% Irish VAT rate, we would calculate royalty based on the VAT-exclusive list price of £4.88.

Learn more about how EU prices affect royalty payments:
https://kdp.amazon.c...=A30XCAGX3E5QDC

eBooks available for pre-order, scheduled to release after January 1, 2015:
For pre-orders placed before January 1, 2015 on books that will release after January 1, 2015, we will pay your royalty as though VAT were still only 3%.

eBooks scheduled for a Kindle Countdown Deal:
If you currently have one or more books scheduled to run a Kindle Countdown Deal in the UK marketplace during or after January 1, 2015, your book will still be eligible to finish that promotion, even if the list price does not fit the new requirements of being priced between £1.99 and £15.99, including the VAT.

Setting List Prices for EU Kindle stores:
Starting January 1st, to make it easier to set customer friendly list prices without having to calculate VAT for each country, authors will set list prices for EU marketplaces that include VAT.  To accommodate this, the KDP pricing grid will be updated to accept VAT-inclusive list prices. Previously, if an author wanted to provide a suggested list price of “£1.99”, he would have to set “£1.93” as the VAT-exclusive list price to account for the 3% VAT we would have applied. Now, authors can simply enter “£1.99” and we will deduct the applicable VAT to calculate royalties. In the pricing page, authors will also see their suggested price without VAT displayed for the primary country of the marketplace to help them understand how royalties will be calculated for sales to customers from that primary country.

For those authors who set their EU marketplace prices automatically from their US list price, we will convert the US list price to local currency and that will be the list price that includes VAT. For example, if an author sets the US list price to be $10.00, then we will convert that price to Euros for the German marketplace, and assuming the exchange rate is 0.8, the Amazon.de list price including VAT will be €8.00. For purchases in Germany, we would deduct 19% VAT and calculate royalty on a VAT-exclusive list price of €6.72.

Learn more about setting list prices for EU Kindle stores:
https://kdp.amazon.c...=A30464Q6OVH578

As always, if an author list books with a lower list price on other sites, we may price match those books to the lower prices. We recommend authors review their list prices that include the new VAT on January 1st when these changes go into effect to determine if they want to make any updates.

We think that respecting your VAT-exclusive list prices and keeping books in their chosen royalty plans offers the best experience for authors. If you would like your books to be handled in a different way, contact us with your feedback:
https://kdp.amazon.c...s?topicId=euvat

Best Regards,
Kindle Direct Publishing Team



#2 Guest_AWExley_*

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Posted 17 December 2014 - 01:48 AM

To put this in perspective, I used to work as a tax accountant and even my eyes glazed over reading Amazon's email...

#3 Darke

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Posted 17 December 2014 - 06:56 AM

One thing, Crew, Smashwords takes the VAT already but I'm not sure about D2D and it looks as though Google Play doesn't take anything either.    


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#4 AQCrew

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Posted 17 December 2014 - 09:19 AM

Hi Ladies,  Thanks for attempting to help sort this out...

 

One thing, Crew, Smashwords takes the VAT already but I'm not sure about D2D and it looks as though Google Play doesn't take anything either.    

 

Darke can you clarify what you mean?...especially on the Smashwords-front (which we don't use)

 

We also don't currently use Google Play, but we used it a long time ago.  We believe that you have always been able to set your prices there as either VAT inclusive or VAT exclusive -- just by clicking a checkbox or not.  So you have to make sure you have that box "unchecked" right?... in order to ensure that the retail prices that you are listing for your ebook is VAT inclusive.  

 

But if you have always had that box unchecked within Google Play (VAT inclusive), then that means your prices are currently too low because the VAT tax per country is going up, up, up, up and the VAT percentage increase per country is different.  So the risk is that Amazon's new VAT inclusive prices per European territory -- the ones come Jan 1, 2015 that Amazon will automatically adjust for you once within your Amazon KDP -- will be higher than Google Play's prices.

 

Is that a wrong train of thought?



#5 Darke

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Posted 17 December 2014 - 10:00 AM

Smashwords has a column for the VAT and has been deducting it from the price. So in Great Britain my $3.99 book is priced 2.49 (converted to British Pound Sterling) -(minus) .72 retailer cut (Apple) - (minus) .24 Smashword cut - (minus) .08 Vat. giving me a royalty of $1.45 which is then converted back into Canadian pound at $2.27 (at the currency conversion price of when the book was purchased)

 

I saw that box today, but it's been unchecked so the tax has not been included in with the price, but the spreadsheet you download detailing your sales does not display what taxes are taken out. It's a very limited spreadsheet. Not helpful at all.          


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#6 AQCrew

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Posted 17 December 2014 - 11:08 AM

Smashwords has a column for the VAT and has been deducting it from the price. So in Great Britain my $3.99 book is priced 2.49 (converted to British Pound Sterling) -(minus) .72 retailer cut (Apple) - (minus) .24 Smashword cut - (minus) .08 Vat. giving me a royalty of $1.45 which is then converted back into Canadian pound at $2.27 (at the currency conversion price of when the book was purchased)

        

 

Ah, okay.  Good to know.  

 

So are you making the assumption that Smashwords will automatically adjust the VAT tax per country the way that Amazon is telling us they will come January 1 2015?  Has Smashwords sent out a notification regarding what they plan to do?

 

BTW, is Smashwords distributing to Google Play these days?  Or are you distributing to Google Play yourself directly?



#7 Darke

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Posted 17 December 2014 - 11:20 AM

Ah, okay.  Good to know.  

 

So are you making the assumption that Smashwords will automatically adjust the VAT tax per country the way that Amazon is telling us they will come January 1 2015?  Has Smashwords sent out a notification regarding what they plan to do?

 

BTW, is Smashwords distributing to Google Play these days?  Or are you distributing to Google Play yourself directly?

This is what they put out. 

 

December 2, 2014 - (updated) On January 1, new VAT (Value Added Tax) rules go into effect in the European Union.  In the past, retailers were able to locate their European headquarters in Luxembourg, and the VAT imposed on ebooks was based on the VAT rate for the country in which the retailer was based.  In Luxembourg, the VAT was only 3%, a rate that was practically neglibible.  Effective with the new EU rules that start January 1, VAT is charged based on the customer's geographic location.  This means that effective January 1, myriad tax rates will be applied to your ebooks when sold at Smashwords retailers such as Apple iBooks, B&N, Txtr and Kobo.  What Smashwords authors need to do to prepare:  At present, nothing.  Smashwords has always distributed books through our global retailers at a VAT-inclusive price.  This means that VAT for European sales was deducted from the sales price, and only then did the retailer take their cut before sending the remaining proceeds to Smashwords.  With the new VAT rules, the VAT tax will range from 15% to 25%.  The average across all the countries is 20%.  The UK, a large market for ebooks, is 20%, even though the VAT rate for printed books is 0% (yes, ZERO).  As one Smashwords retailer told me recently, "we're all getting hit with the same stick."  It's a painful stick.  Authors and publishers are left with a difficult decision.  Raise prices on consumers to make up for the tax bite, or eat the higher taxes to preserve low prices?  The VAT change comes at a time when, as I wrote recently in a post at the Smashwords blog, the ebook market is facing slower growth and many indies are facing increased competition and lower sales.  And here's something I haven't heard anyone talk about:  This VAT change also comes at a time when the US dollar is reaching multi-year highs in the currency markets.  Since Smashwords books are originally priced in dollars before we calculate currency conversion rates, it means that dollar-denominated books have already been getting more expensive to European customers since their Pounds and Euros don't stretch as far as they once did.  If you're contemplating holding the line on your prices, you can take some solace that the strong dollar will mitigate some of your pain.  Long term, however, indies will be forced to make that difficult decision:  eat it or pass it on to reader?  We're not contemplating any immediate changes at the Smashwords retail store, though we're investigating options and obligations.  For the time being at least, your highest margins will be at the Smashwords store.

~~~~~~~

I have a few books that are low price (due in part to word count), but that's my choice. If it comes down to it, I'll eat it and do more serious thinking on future prices. As for Google Play, yeah, I upload directly to them.   


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#8 AQCrew

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Posted 17 December 2014 - 11:27 AM

Great info, Darke.  Definitely helps complete the picture, and will certainly help clarify the issue to anyone who is distributing through Smashwords, or who plans to in the future.



#9 Darke

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Posted 17 December 2014 - 11:37 AM

And this is what Google has to say about it.

 

https://support.goog...r/1231283?hl=en


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