International tax on digital products for a US company


3

I'm a developer in the US (Maryland) with an LLC and an application that I would like to sell through my website, delivered via download. I do not intend to ship physical goods of any sort, my product is download-only.

The Maryland State Comptroller's Office has informed me that for sales of only intangible goods, I do not need to obtain a Sales and Use Tax license, nor do I need to charge sales tax on my product. However, I would also like to sell my product outside the US.

So do I need to be concerned about the VAT tax? Are there any other international taxes that might apply to me? Do I need to register for some sort of international sales license? If anyone else has been in this situation, could you please explain how you've dealt with it?

I'm having trouble finding a definitive answer on this, and even the business advisers I've spoken to seem unfamiliar with digital products and international sales.

Tax International Digital Product VAT

asked Jun 24 '11 at 21:20
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Blueberry
18 points

3 Answers


2

I live in Canada so I can't speak for VAT. However, to sell to Canadian residents, you will not need to charge sales taxes because your business are not located here.

If you are still not certain, try to initiate the purchase process of any large digital products like LinkedIn, BaseCamp. and etc. Enter your location as one of the EU countries and see if VATs are being collected. If they are not collecting VATs, then you probably don't have to.

answered Jun 25 '11 at 01:19
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Nick
173 points
  • Great idea. Thank you! – Blueberry 9 years ago
  • I'm in the EU but don't know the position for companies outside... but I'd warn that one potential issue with the (clever!) idea above is that larger companies might have an EU presence -- maybe just a branch office -- and that might mean that they had to charge VAT to EU customers regardless of their country of incorporation. Think of the issues Amazon is having in the US with sales tax and their affiliate program. – Giles Thomas 9 years ago
  • @Giles Thomas - Ah. Yes that's a good point. – Blueberry 9 years ago

2

I asked myself the same questions when I was getting ready to launch my online business as well.

I'm no accountant (though I did speak with an accountant, a tax adviser, and my state's department of revenue about this). What I learned is that you don't have to collect sales tax unless you are selling a tangible good (as you already figured out), and if selling products to customers in Europe, simply state that VAT is not included in the purchase price. That way AFAIK they are responsible for paying it, similar to a use tax in the US.

Dealing with sales tax in the US alone can be a nightmare; I can't imagine what it would be like if you had to charge/report/pay sales tax for every country in the world!

answered Jun 25 '11 at 02:50
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Sean Murphy
61 points
  • Thanks, that is helpful. – Blueberry 9 years ago

0

Unfortunately, yes - you do need to be concerned with VAT.

The "place of business" for a digitally downloaded product is the location of your customer's computer - it does not matter where in the world your business is located, if the customer is in the EU, you are liable for VAT. See

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000902&propertyType=document At present, there are some thresholds for certain countries (for example, you are not liable for UK VAT until your sales in the UK reach £73,000). However most countries do not have these thresholds and the UK are removing their threshold from December 2012 (because of Schmelz v Finanzamt Waldviertal (Case C-97/09)).

If you make sales to a customer in an EU country - you are liable for VAT.

answered Mar 4 '12 at 21:07
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Adam Kalel
24 points
  • -1. Since when the UK laws have any bearing on Maryland? I believe after 1777, people of Maryland couldn't care less about the British taxes. – Littleadv 7 years ago

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