Tuesday, January 6, 2015

V A T Decoded

The concept is really not complicated. 

All it is, is tax included in the price and based on each country's tax rate. (This is a standard in Europe. The price you see on the shelf is the price including tax unlike in the states where tax is added after the fact.)

On the surface, it seems simple- but there are a lot of things to consider. Thanks to all my various online groups that helped me gather all this information. 

This isn't going to be the greatest read ever, but knowledge is power-so stick with it.

The basic rundown before we get to the nitty gritty.
All countries have different rates of VAT. 

Hungary 27%
France 4.5%
UK 20%

Amazon was very proactive about this change and any books you had on their site before 1/15 were raised the correct amount in order cover the VAT. Any new books you add, you will have to account for the VAT. You need to account for it on all other distribution sites like Nook Press, Kobo, iTunes, etc.

You can go to the VAT managers and opt in at Smashwords and D2D to have all your prices automatically updated-This is one reason I love Smashwords. It took me a good hour to update all my prices everywhere to match Amazon's VAT prices. With Smashwords handling Kobo, iTunes and some Nook books, it saved me a lot of time to opt in. Time I'd rather use writing.

A lot of authors are doing a blanket increase in prices of 25% and are taking a small loss for those countries with a higher VAT and are making a bit more on the countries with a lower VAT. Others are using charts like this one to determine each countries individual price including VAT. (Thank you, Carolyn)

The biggest problems:

1.Amazon's price matching policy-they price match European prices too, so if your book is cheaper in Europe, then Amazon US will match it. You must keep an eye on all your prices to make sure you don't end up losing a lot of money.

2.Barnes and Noble's prices are VAT exclusive while everyone else's are VAT inclusive. Many authors have set all their books at Nook to US only because of this. I have not.

Here are some examples of why this is a problem.

Suppose your US price is 2.99 (US dollars) that's 2.47 Euros (roughly)

At Nook, a VAT exclusive price of 2.47 yields this:

Nook WITH VAT added to 2.47
19% VAT: 2.94 <-- Germany
5.5% VAT: 2.60 <-- France
20% VAT: 2.96

Apple, which rounds, you would be able to normalize your prices
19% VAT: 2.99 <-- Germany
5.5% VAT: 2.99 <-- France
20% VAT: 2.99

Kobo -- a single EU VAT inclusive price -- Pretend you told Kobo 2.99
ALL EU Countries: 2.99

3. The various countries' fixed book price laws and Kobo and iTunes requires all book prices to end in .99.
(The fixed book price laws state that the same book at different vendors must be sold at the same price at all those vendors within that country. So, if you opt in to Nook UK, then your books must have the same price there as with Amazon. Tricky when Nook is VAT exclusive as seen above)

Check out these examples to see why there are problems to consider here.

You want your Hungarian readers to pay 0.99 for your book
1. 0.99 is the price the user pays.
2. The Hungarian government retains 27% of 0.99 or 0.21.
3. You will be compensated by the vendor based on the VAT exclusive 
price of 0.78 (0.99 - 0.21)

You want to sell your book for 5.99 in the UK.
1. The UK has a VAT of 20%
2. The UK will retain 20% of 5.99 or 1.00
3. You will be compensated by the vendor on your VAT exclusive price of 4.99

You have determined that your book must earn a royalty rate using 4.99 
(that is, you want 70% of 4.99)
1. This is NOT possible if you want all your prices to end in .99

Assuming a 70% royalty rate, suppose you have determined that you need 
your royalty rate to be calculated on an amount no less than 4.00 (that 
is you will never earn less than 70% of 4.00) In order to maintain a 
price that ends in .99:
1. your book must be priced at 4.99 in all countries with a VAT of 24% 
or lower
2. Your book must be priced at 5.99 in all countries with a VAT of 25% 
or higher.
3. In a country with a VAT of only 3% your royalty would be calculated 
on 4.85. In other words, you make more money in a country with a lower 
VAT, obvious, but it helps to restate, I think.

Some things to think about:
If you want to sell your book at 3.99 everywhere in the EU, regardless of 
VAT amount.

1. This is possible at Apple, Kobo, Google and the EU countries Amazon 
sells to.
2. This is NOT possible for Nook because they only let you set one price 
for the entire EU.
3. This is possible at Google Play but more complicated because of their 
4. In this case, your royalty rate base will be variable (price less 
VAT) but your price to consumers is the same everywhere except for books 
sold to the EU via Nook.

Extra hints to help out-

For the countries were Amazon has a store front you can set your EU VAT 
inclusive price, so you can match Apple and you're fine in Kobo as long 
as you're mindful of the result at iBooks.

So, as long as Nook requires a single VAT exclusive price from US-based 
authors, Nook prices will never be in compliance with EU laws about 
fixed book prices.

All other vendors 
you can, with some work, set your prices to 
comply, but you're stuck with using your Kobo price for Amazon, Apple, etc.

Google Play makes this all difficult if you don't opt in for VAT inclusive because they discount the books

Italy VAT is only 4% if have an isbn. Yay for isbns in Italy.

There are also new minimums and maximums to consider in these countries. Read about that here:


In short:
Nook expects US people to provide VAT exclusive prices for their books. 

iBooks posted a list of the EU countries and their respective VAT and 
expects users to adjust prices to include VAT for the EU countries. This 
can be done via iTunes Connect. No Mac required, assuming you opened an 
account with them.

Google lets you tell them whether your price includes VAT and will add 
it for you.

Kobo's documentation says it expects users to provide a VAT inclusive price.

Amazon did a one-time adjustment for existing books on January 1. 
Books added after that will need to have VAT included where a given 
country has VAT.

Smashwords and D2D require you to opt in to VAT inclusive if that is what you want to do.

Have you adjusted your prices to include VAT? 
How was the process?
How long did it take you?


Donna K. Weaver said...

*sigh* My head is spinning.

Thought that could be from the NyQuil.

Bish Denham said...

I'm still confused...

Elana Johnson said...

I still need to figure it all out. Or maybe I'll just take the loss. I'm not sure I'm selling anything in Italy or other countries anyway.