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UK isolated on 2015 e-book VAT rises to 20%

  • Dec 8, 2014 | Richard Asquith

UK isolated on 2015 e-book VAT rises to 20%

UK buyers of e-books from major providers such as Amazon Kindle face VAT hikes to 20% under new EU 2015 rules on selling electronic services.

Italy cut VAT on e-books from 22% to 4% 2015, and Malta lowered VAT on e-books from 18% to 5% 2015.  France and Luxembourg already charge 7% and 3%, respectively.

EU VAT loophole on e-books

Under current EU laws, e-books are subject to standard VAT rates, whereas printed books are at significantly reduced rates (0% in the UK for example). France and Luxembourg have not adhered to this rule, claiming that they are in effect the same product and so have applied reduced rates. Printed books are given reduced rates as they are viewed to have particular cultural significance.

Under current EU rules, this has attracted the likes of Amazon Kindle to channel all of their EU sales through Luxembourg as they then only have to charge 3% reduced Luxembourg VAT to readers in the UK or any other EU member state.

2015 EU VAT changes impose VAT rises

The EU is reforming this loophole from 1 January 2015, and will require e-book sellers to charge the local VAT rate to their consumers. This will mean UK readers will pay the UK’s 20% VAT rate instead of Luxembourg’s 3% rate.

The European Commission has in the meantime taken France and Luxembourg to the European Court of Justice over their use of reduced rates on e-books. However, a recent Finnish ECJ e-book ruling on a related matter seems to have given member states the green light to cut their rates.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara