Happy New VAT

As the new year 2015 starts, Apple implements the changed EU VAT requirements.

Before the turn of the year iTunes and app store prices in the EU where charged with Irish VAT. This is because Apple funnels all their European earnings through their Luxemburg-based subsidiary iTunes S.à r.l.

Slowly turns the EU grinding wheel

The old scheme meant that individual countries would not receive any part of the collected tax money for digital software sales. Because of this EU member states came together and decided amicably to change this atrocity. Actually they already did that more than a decade go.

Council Directive 2002/38/EC, in force from 1st July 2003, changes the EU rules for charging Value Added Tax (VAT) on the supply over electronic networks (i.e. digital delivery) of software and computer services generally, plus information and cultural, artistic, sporting, scientific, educational, entertainment or similar services. From now on, these services will be taxed in the country where the customer resides rather than where the supplier is located.

The rationale behind this directive is explained thusly:

For the purpose of the Directive, the services concerned are defined as “electronic services” or “electronically supplied services”. The changes in their tax treatment will eliminate a long-standing competitive distortion by ensuring that both non-EU suppliers and EU suppliers are subject to the same VAT rules when they are providing electronic services to EU customers.

Even though this directive is more than a decade old, it is only now getting implemented. I am neither a (tax) lawyer nor a law historian but it seems to me that where were several extensions, exceptions, amendments (2006/112/EC) and feasibility reports prepared. The latest EU document I found mentioning the Jan 1st 2015 implementation date, dates October 2013.

Long story short… it took 13 years, but finally software is taxed like it should be.

New VAT Rates

Apple has a tax FAQ with details of the before and after.

Before January 1, 2015, the App Store has applied the VAT rate for its country of residence, Luxembourg (15%) for all sales in the European Union.

Beginning January 1, 2015, the following VAT rates (current as of November 30, 2014), based on the customer’s country of residence, will be applied:

Country VAT Rate
Austria 20%
Belgium 21%
Bulgaria 20%
Croatia 25%
Cyprus 19%
Czech Republic 21%
Denmark 25%
Estonia 20%
Finland 24%
France 20%
Germany 19%
Greece 23%
Hungary 27%
Iceland 24%
Ireland 23%
Italy 22%
Latvia 21%
Lithuania 21%
Luxembourg 17%
Malta 18%
Netherlands 21%
Poland 23%
Portugal 23%
Romania 24%
Slovakia 20%
Slovenia 22%
Spain 21%
Sweden 25%
UK 20%

Note that VAT rates in EU member states may change at any time depending on relevant legislation. The standard VAT rate is used for all EU countries and Luxembourg has approved a higher VAT rate effective January 1, 2015.

For me as an Austrian this means – at first glance – that I will be paying 5% more in VAT. And not just for software, but for all digital content from Apple including music and movies. You can see this change on the invoices that iTunes mails you.

On this invoice, dated January 1st there is still the old 15% rate mentioned for a movie rental.

And two days later, the new rate is applied for a music purchase:

Another welcome change is that those are now proper invoices. In the past you would only get emails with subject “Ihr Beleg” omitting any tax info. Now you get “Ihre Rechnung” and it does mention the included tax amount.

This change in billing much simplifies getting VAT refunded on iTunes purchases you make for your company. Now, I can expense app purchases normally like everything else and – if purchases are made for my professional work – I can get the mentioned VAT amount refunded.

Good for Business

Previously, if you wanted to get “proper invoices” or to buy tax-free under the EU reverse charging scheme you had to place your order by phone with Apple. I know somebody who actually jumped through these hoops so that so that he didn’t have to pay VAT on the annual fee for the Apple developer program. But – in practise – few people would concern themselves with this.

The new system increases prices for consumers by a small amount. But at the same time it makes company purchases of software cheaper as it is now much simpler to get your VAT refunded. You can now buy your apps (for your business) the same way you do as a consumer, online.

While VAT-paying consumers will have to pay slightly more for their apps, I don’t see anybody buying less on iTunes because of the tax hike.

Categories: Apple