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I've been reading up on VAT as it looks like this year we may need to register.

We are in the UK, and sell digital goods on our website (one piece of software).

As I understand it, if someone buys our software outside the EU we don't need to charge VAT.

We use Paypal for all transactions. Paypal transactions are sort of annonymous in the way that we can't accurately define the country of origin of the payment. If we have a box saying choose your country, is this sufficient? I'm guessing not, how do other businesses deal with this?

Also, am I allowed to sell the software at different prices? For example, a US resident would be buying the software at $50, wheras the UK citizen would be buying it at say $40 + $10 VAT. Is this discriminatory in any way?

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Tom - see that big red 0% accept rate under your name? See the FAQ and sort that out will ya otherwise posters here will stop replying to your q's. Ta! – Ryan Feb 8 '12 at 18:17

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We ask for a billing address so we can determine whether to apply VAT. After all, there is no way to know where the customer is from other than asking. If the info the customer gives you is wrong, you might end up in trouble if you failed to apply VAT when required, but there is really no way to be 100% sure.

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YOu could add an IP address lookup. Someone coming from an IP in germany is not likey to live in ghana ;) It is no tfail safe, but captures 99% of the people. Misses VPN providers and some international networks (sattelite internet - which country, for example). – NetTecture Feb 8 '12 at 13:01
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Actually, you would end up locating the person placing the order, not the legal entity he/she represent. I would not do that. Also, what if I order something when I'm traveling but I live in another Country? – Dario Solera Feb 8 '12 at 14:42
It is good enougbh to put the orer on hold and ask. THe main point is that it is a better defense to "ask by email then send on confirmation" than to jsut ship. If you represent a company in anotehr alpce you can send in registration papers to proof. – NetTecture Feb 8 '12 at 15:19
up vote 2 down vote

If you become VAT registered in the UK (or anywhere else in the EU for that matter) then you have to :-

  • Charge VAT @ 20% to every sale to customers in the UK
  • Charge VAT @ 20% to individuals or non vat registered organisations in the EU
    • If they are VAT registered you must take their VAT number and you should validate it and you need to submit a monthly/quarterly EC Sales List (ECSL)
  • If the customer is outside the EU then no VAT is due.

(Note - keep in mind that what is inside the EU for VAT purposes can be complex. Switzerland isn't, Jersey isn't and I think principalities like Andorra/Livino aren't eikther. If its a large sale to a county your not sure off then check with the VAT helpline otehrwise you could get stiffed for the VAT if you forgot to charge it).

Many smaller software publishers use one of the payment processors to handle this on your behalf because its a PITA.

Also, am I allowed to sell the software at different prices? For example, a US resident would be buying the software at $50, wheras the UK citizen would be buying it at say $40 + $10 VAT. Is this discriminatory in any way?

No - you can do what you want re: regional pricing. It can annoy though - how many times have you been annoyed that a company will charge $99 and £99? even though the exchange rate is not 1:1?

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