Once again, about VAT and international Sales Taxes
Hi everyone,
My name is Christoph and i recently founded a "one man" company in Austria (europe) to sell my applications on the app store. I know that there are plenty of threads about the whole topic of VAT and sales tax and that everyone should ask his tax accountant or something like that. But i'm actually writing here because i did this, but the result isn't really pleasant. I'll split the whole thing into three questions. While the first one is related to VAT within the EU, which is probably a question to other european developers, the other two will also affect other developers around the world. I hope that i can share my (few) experiences and perhaps someone could help me out.
1. VAT within the EU
I'm not 100% sure at which point the VAT systems match across all countries of the EU, therefore i'll try to state the facts as they are within my country. Since i'm selling my apps (digital products, sold exclusively over the internet) to end consumers with apple as my agent / commissioner, i've two different rules for paying VAT / other sales taxes:
- the end consumer lives within the EU -> i've to pay VAT in Austria
- otherwise -> i've to pay taxes to the corresponding country
The "funny" part about this is that in some countries (USA, Canada, Australia, EU countries, ) apple already collect and remit those taxes to the competent tax authorities. When i looked at the first financial reports, i saw that apple collects 15% VAT for sales within the EU (i guessed that's because the corresponding agent is iTunes SARL Luxembourg). Well, at first i thought something like "great, less work for me" till my tax accountant told me that this doesn't make sense to him and that i should get in touch with the local tax authorities. I wrote them a nice letter and asked about clarification and they told me that since apple only acts as my agent, i'm responsible for paying VAT to them (actually 20% is the VAT rate in Austria).
If that's the fact, then i would actually pay twice VAT (35% combined) because apple collects the 15% although they shouldn't do that. This doesn't make any sense to me perhaps anyone knows a little bit more about that. Since i'm from a small town, i thought that perhaps my tax authorities are a little bit overstrained and maybe someone has a hint for me to lead them to the correct path
2. Sales tax within the USA
That's more a question out of curiosity. For all i know, not every state does have a sales tax, right? Within the EU, the prices at the app store already include VAT. Is this the same for US prices or does the consumers get charged with a higher price on their credit cards.
I'm asking because unlike the EU, the US financial reports doesn't show any price differences for a sales tax. Either they are calculated with 0% (no tax) or they are added afterwards, and collected by apple.
Well, actually as an addendum to my first question: i think that by local law, i have to pay those taxes. I mean, if apple handles that correctly within the US then i don't think that they would sue me, at least i hope.
3. other countries
My last question concerns those countries where apple don't collect those taxes, like Brazil or Japan.
I'm currently selling my applications only in japan, so i don't know about a sales tax in brazil or other countries, but i guess that in theory the basic concept should be the same (about contacting them, not about taxes). What's the common way of contacting other countries with your tax duties? That's actually the point when my accountant said that this is too much for him :/ guess i should get a better one
I'm asking because the contract states that filing of consumption tax returns and payment of consumption tax to the japanese government is my responsibility. Anyway, i haven't filled out the japanese tax forms yet. Furthermore, i read a lot of threads about the japanese withholding taxes, but for all i know, please correct me if i'm wrong, there's a difference between the withholding tax and the consumption tax. The withholding tax should be a tax for your proceeds, while the consumption tax is the japanese version of the sales tax, right? So, the japanese tax forms (provided by apple) are only to reduce the withholding tax, based on the contracts between your home country and japan, but you still have to pay consumption tax (which is "only" 5%).
2. Sales tax within the USA
That's more a question out of curiosity. For all i know, not every state does have a sales tax, right?
...
right
Quote:
Originally Posted by LiVe_DBG
..
Within the EU, the prices at the app store already include VAT. Is this the same for US prices or does the consumers get charged with a higher price on their credit cards...
US prices don't include any tax. The end user pays the sales tax separately. But... we are talking about software. In many states the software (if being downloaded, not physically shipped) is not taxed. In California it's like that. I don't know about other states, IMHO most don't. Excerpt from California law:
"The sale or lease of a prewritten program is not a taxable transaction if the program is transferred by remote telecommunications ..... bla-bla-bla..."
Quote:
Originally Posted by LiVe_DBG
..
I'm asking because unlike the EU, the US financial reports doesn't show any price differences for a sales tax. Either they are calculated with 0% (no tax) or they are added afterwards, and collected by apple.
Because there is no tax.
Quote:
Originally Posted by LiVe_DBG
Well, actually as an addendum to my first question: i think that by local law, i have to pay those taxes. I mean, if apple handles that correctly within the US then i don't think that they would sue me, at least i hope.
Regarding US sales you don't have to pay any US tax or anything like that.
Disclaimer: I'm not accountant or lawyer. I may be wrong. It's just as much as I know.
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I am neither a lawyer nor accountant, but I believe that with the way Apple has everything set up you should only pay income tax (if your country has such a thing). YOU are not selling anything (in the US, I don't need a seller's permit as I'm not actually doing any selling), Apple is selling things and you are being paid an amount that has already had sales tax and VAT taken out.
My accountant had to double check that this was correct when I first described to her how it works when I was setting up my business, but that was the conclusion she came to as well - I'm not a seller, I have a licensing deal (similar to recording artists with the record companies, each individual artist isn't getting a seller's permit).
Regarding US Sales tax, dre is correct - unlike the UK the $0.99 price is the price WITHOUT sales tax and the correct sales tax for the user's state is applied after the fact - which is how prices work in the US, we only see the before sales tax price, in contrast to countries with VAT (or at least the ones I've been to), where the price that you see on the item is the final price you pay at the register.
@dre and @barrettj: thanks for the explanation of the us sales tax
@barrettj: that's the way i am handling things at the moment, till my accountant criticized that. I'm also quite sure that apple is handling it that way, because then, everything would be taxable in Luxembourg (iTunes SARL for EU sales, with the 15% VAT) and everyone would be happy (or at least i would).
Anyway, today the whole mess got even more messier. Because of the fact that "apple market … [everything] for, and on Your behalf", they separate the contract into two performances. The first one is MY performance to the consumer, which didn't change since my first post. Basically, they're saying that i'm giving the consumer the permission to download the app (apple is still just an agent), which makes the income taxable in austria (still talking about vat).
The second performance is about the commission to apple. I'm also responsible for paying 20% VAT tax on this commission, but at the same time i'm able to declare that as an input tax, so i don't do anything except calculating the actual commission for iTunes SARL and putting them into the tax reports which is more a control mechanism for the vat system. i think that this is a vat law for everyone within the eu.
I'll contact the tax authorities again on thursday. i guess that there's something unclear about the "details" of this contract. Anyway, i'll post an update once i know more about it
I didn't read eveyrthing throug, I admit, but what I have learned about taxes so far (I have a GmbH in hungary.. I am living in austria, so hi! ) is the folowing:
Hungary has an agreement with the US, so the US don't withhold taxes. I had to declare this in a W-something form and send to apple.
For Japan sales I also filled some tax forms. You can download both from the Apple site.
The interesting part is coming:
Hungary is in the EU
Apple told me, that Apple paid ALL taxes within the EU. So you don't have to pay taxes for sales made in the EU. (I mean VAT/MwSt, not income or other taxes)
You have to take care about all other taxes from all over the world yourself.
We were discussing with the hungarian tax office for 6 months and they had no clue, how to handle this. They say, they are discussing the whole internet-sale-webshop thingy internally, but no decision has been made yet.
So we came up with the following:
We crap on taxes.
We write an invoice to Apple, which we then throw away, because Apple doesn't need it, but we have the copy in the book keeping.
On the invoice we write "VAT is outside of applicable territory" or something like that... our accountant has the right text form. The point is, our invoice has no VAT on it.
So the money we receive from apple is a NET sum and we don't pay VAT/MwSt.
Our tax office said, it's ok, so I don't discuss anymore.
The idiots just want to see, that I have written an invoice to apple.
If you would want to do the math, how much tax you have paid in which country, and if you even paid tax (because there are countries, which have no tax at all) and how much you have to pay and with which exchange rate between dollar and euro and who-knows-what-kind-of-money, then you can go crazy.
And how the hell would they know... and to whom do you want to pay taxes?
At one point we have even discussed about requesting the VAT, which was paid by apple back from our tax office. That was during the 6 months, where we tried to figure out hundreds of ways, how we can handle this.
I would say, don't think too much about it.
Write an invoice to apple and that's it.
Nobody could pay you the hours for the work until you can figure everything out. Apple is also not really helpful in this, because they write the income in AUD and Mickeymouse dollar, but they send you the money in USD, but they don't say, with what exchange rate...
Last edited by Hunnenkoenig; 11-24-2010 at 02:38 PM.
Hungary has an agreement with the US, so the US don't withhold taxes. I had to declare this in a W-something form and send to apple.
I believe this is unrelated to the european VAT.
Quote:
For Japan sales I also filled some tax forms. You can download both from the Apple site.
Me too. No answer, still holding back the 20%
Quote:
You have to take care about all other taxes from all over the world yourself.
Hmm? What other taxes? I think Apple collects the taxes everywhere and deals with the local authorities. I seriously doubt they expect the developers to handle the different taxation systems of some 50+ countries.
Quote:
We write an invoice to Apple, which we then throw away, because Apple doesn't need it, but we have the copy in the book keeping.
This is exactly what my accountant said, so I am doing this too.
The (hungarian) laws explicitly list when you can issue an invoice with 0% VAT, and one of these cases is when the other party has already paid the VAT. This seems to be the case here, and I suppose other EU countries have similar rules.
But how the hell am I going to prove to the tax office that Apple has indeed paid the VAT if they decide to check my company?
Yes, but the point is, that based on Apple's (really vague) answer to my question if they pay taxes, they said, they only pay EU taxes in our case.
The emphasis is on the fact that they pay the EU taxes.
They don't pay US taxes for us and therefor they don't withhold taxes in the US, due to the fact, that Hungary has this agreement since 1976 (or 1979... I can't remember). I don't know, how it is in accord with the EU law since Hungary is in the EU now (hey, it rhymes! ).
Quote:
Originally Posted by bjano
Me too. No answer, still holding back the 20%
Hm... I didn't really check, because I was assuming that everything is fine.
Are you sure, you filled the form right?
I have to check on this one.
Quote:
Originally Posted by bjano
Hmm? What other taxes? I think Apple collects the taxes everywhere and deals with the local authorities. I seriously doubt they expect the developers to handle the different taxation systems of some 50+ countries.
That's what I am also saying.
You can't handle taxes for all those countries.
None the less, Apple told me that I have to take care of it, because they don't.
I don't know, if the guy who wrote this even knew, what he is talking about, but I have to assume that he did, because I contacted some "special forces" by Apple, which is handling banking and tax and such things.
Quote:
Originally Posted by bjano
This is exactly what my accountant said, so I am doing this too.
Cool
Quote:
Originally Posted by bjano
But how the hell am I going to prove to the tax office that Apple has indeed paid the VAT if they decide to check my company?
I think you can't as long as Apple has no office in Hungary.
You can tell those nazis to go and ask Apple themselves. Let's see how they handle it and if Apple talks to them
I don't think that Apple cares, why those idiots are jumping around and what they want, so no worries.
You did, what you could.
I was told by the hungarian tax office that they have no clue, how to handle it. So how I should know?
I asked them for a written statement and I asked, what should I do, if I get a control. They said, I should show the controller that statement.
I don't care, what they say and what they want. I did everything right, how they wanted. They should handle everything else on their own, if they have problems.
I don't let myself scaring off by them.
Last edited by Hunnenkoenig; 11-24-2010 at 02:36 PM.
3. other countries
My last question concerns those countries where apple don't collect those taxes, like Brazil or Japan.
Firstly i am by no means an accountant.
However looking at it from a logical point of view. If the Brazilian (or wherever) tax office decides there is a sales tax on apps. Then they have 2 choices. They either
1) chase 100,000s developers all over the world for a few dollars each
2) chase apple for $100,000's
I know which I would choose.
In many cases there may be no tax law as such in place for 'downloads' Apple may argue that they aren't required to pay tax. However, again (i guess) it would be much easier to change the tax legislation to target apple rather than to go and chase the developers.
Thats just my opinion though.
If you are really concerned about it work out how many sales you have made in non 'sales tax' countries - this is the amount you potentially could owe to them. Then weight up the cost to you if they all came knocking at once, against the likelihood of that happening.
If the tax inspector from Guatamala contacted me to say that i hadn't paid them 20% sales tax on all my app downloads from there this year, i will happily write him a cheque for $0.40
@ Hunnenkoenig: Hi sounds like you got through a lot there my condolence
Quote:
Originally Posted by Hunnenkoenig
Hungary has an agreement with the US, so the US don't withhold taxes. I had to declare this in a W-something form and send to apple.
I read a lot about this "W-something", but since i got my developer account (july 2010), this form is gone from itc. But i'm not missing a cent on my us sales, so i guess its just fine.
Quote:
Originally Posted by Hunnenkoenig
We crap on taxes.
Guess that's the best way of handling it
Yeah, i also did those invoices for our book keeping. The itc faq states that you could send them apple through the contact us form, but whenever i click on the invoice menu, all i saw is an empty grey box. So i figured out how important those invoices are to apple...
Quote:
Originally Posted by bjano
But how the hell am I going to prove to the tax office that Apple has indeed paid the VAT if they decide to check my company?
Well, i would say that in the worst case you could refer to the contract.
But that's also a little bit vague. In austria we have a special tax form for transactions within the eu. My accountant said that this is an eu law where every country collects those forms and once a year they go on vacation and share those with each other. But he wasn't even sure that i have to complete this form, which worries me a little, because for all i know, there's a financial penalty when you don't submit this in time.
@Blunketts_Dog: I think you're right that this is very unlikely that they'll chase you for a few dollars, but in the end it would be nice to know how it should be handled. Just to be safe.
About the "apple is handling / isn't handling taxes around the world", read the contract for paid apps: 3.2 respectively Exhibit B. They are telling you where they are handling sales tax / vat / or something similar, and where they don't, which doesn't mean that there is a sales tax on apps in this country. That's actually why i limited my apps only to this countries (at least for now).
Once again, about VAT and international Sales Taxes
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